Thursday, May 12, 2005

Everyone seems to have been caught off guard by the relatively (and I do stress relatively) small US trade deficit for March 2005: a mere $55bn compared to a consensus forecast around $61bn and a worst-case-scenario from Brad Setser of $65bn.

So what happened? Part of the answer seems to lie in US non-petroleum imports, which fell dramatically -- at least on a seasonally-adjusted basis -- from $117.2bn in February to $112.3bn in March. By end-use category, consumer goods imports took the brunt of the hit, dropping from a whopper $35.1bn in February to $32.7bn in March. Auto sector imports also fell markedly, from $20.0bn to $18.7bn. (The end-use numbers don't sum up to the non-petroleum total, FYI). Is the big US consumer slow-down finally upon us?

Let's look at the non-seasonally adjusted data. Y-o-y consumer goods imports to the US are up just 3.3% for March while all goods are up 9.8% y-o-y. The non-seasonally adjusted data broken down by SITC shows import drops in March for top consumer goods categories such as clothing, footwear, furniture/bedding, lighting/plumbing and toys/games/sporting goods (but not TVs). No surprise then that goods imports from China fell in March by $0.74bn (NSA) -- the only major trading partner with which the US experienced an import drop in March.

To be fair, the fall in the overall deficit was also thanks to the largest monthly services surplus since April 2004. At $4.4bn, the services surplus was mainly reliant upon a big jump in services exports ($0.5bn), made up by travel services (+$0.18bn), other private services (+$0.19bn), and non-passenger-fare transportation services (+$0.13bn). A foreign tourist boom capitalizing on the weak dollar?

When taking in the big picture, however, clearly the significant drop in the overall deficit for March is due almost single-handedly to a drop in consumer goods and auto-related imports from China. There is clearly something fishy going on here.

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