Cutting consumption is the only way
Brad (aka Bob) was right. Calculated Risk was right. Hell, even I was right after further consideration.
The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that total June exports of $106.8 billion and imports of $165.6 billion resulted in a goods and services deficit of $58.8 billion, $3.4 billion more than the $55.4 billion in May, revised. June exports were virtually unchanged from May, and June imports were $3.4 billion more than May imports of $162.2 billion.A trade deficit of $58.8bn racks up the country's third biggest monthly trade deficit of all time, and only $0.16bn short of the #2 slot. The twelve largest monthly deficits have occurred over the last twelve months. No surprise then that the 2005 deficit is currently running 17.9% larger than the 2004 pace, on track for an annual trade deficit of $730bn pushing -6.0% of GDP.
The good news of early 2005 has clearly dissipated like the morning mist. After growing robustly in March and April, US exports have been stagnant in May and June. Imports, on the other hand, continue to soar. June goods imports in particular were up 2.4% in a single month!
As with May, oil has wrought much of the June trade deficit. US petroleum import prices jumped a whopping 7.9% in June, and in tow came a record $19.9bn petroleum import bill. Oil prices contributed about $1.6bn to the month's deficit all on their own. Petroleum imports prices in July were another 6.6% higher than in June, so get ready to test the all-time trade deficit record of $60.1bn next month.
It's not all about oil, of course. Non-petroleum goods imports are up 11.6% on the year while services imports are up 11.4%; the total non-petroleum import bill is up an overall 11.5%. The good news is that US export growth is faster, up 11.7% this year. The bad news is that total non-petroleum imports are 37% larger than total exports, the upshot being that with non-petroleum imports growing 11.5%, total exports would have to grow at a nearly 16% pace just to keep the trade deficit stable. And that's assuming falling oil prices (due to ever-rising petroleum import levels).
There is no way in hell that nominal US exports are going to grow at a 16% annual rate. It hasn't happened since 1988, and it occurred back then thanks to a huge export boom in agricultural products and steep export price inflation. It also happened in 1973-74 and 1978-80 for the very same reasons. This will not happen today. No way. Impossible.
So what is the solution to this conundrum? The same answer I've been giving ever since I began the Globblog. The US must consume less. Much less. There is no other way out.