Wow. That's a big one.
The word is out from the Commerce Department: October's seasonally adjusted US trade deficit in goods and services tallies up to a gargantuan $68.9bn. You don't need me to tell you it's a record. Or that it's a full $2.9bn larger than the old deficit record set way back in September. Or that the 2005 trade deficit is on track for 19% annual growth over 2004 and 45% growth over 2003 (that, too, is pretty damned big).
You might not know, however, that the seasonally unadjusted trade balance for October calculated on a C.I.F. basis was $82.5bn, an enormous $19.1bn larger than the deficit of October 2004, which back in the halcyon days of 2004 was itself a record.
How did we do it, you ask? A big big rise in goods imports combined with stagnant services exports. US services exports have been advancing in a step pattern for some time now. They hit a plateau and stay there for months at a time, then there is a little leap up to another plateau at which they stay for a while, and so on and so on. The last step up for services exports was September 2005, and before that, March 2005, and before that, November 2004. So the current plateau will probably be around for a few more months.
The more worrisome result from the October data is the strong growth in goods imports. Over the last three months, the seasonally adjusted annualized US goods import bill is $1.74 trillion (an annualized $1.62 trillion over the first six months of the year). Thus we're on an import binge of late, there is no doubt about it.
And it's not simply an oil binge. Petroleum-related goods imports are indeed up markedly over the past three months, averaging $24.2bn per month (while just $18.4bn per month over the first six months of 2005). At the same time, non-petroleum goods imports are averaging $120.4bn over the last three months, up from a first-half-of-2005 tally of $116.4bn. In sum, 59% of the growth in the annualized Aug-Oct 2005 goods import bill over the annualized Jan-June bill is due to oil, but 41% of it is due to growth in things other than oil.
And what might be said "things other"? Cars and consumer goods. Automotive imports so far this year are up 4.3% in nominal terms, and consumer goods imports are up 10.4%. No wonder the US personal savings rate has been negative over the last five months (June-Oct) and six of the last seven. The hard times upon which General Motors, Ford and Delphi have fallen won't be helping matters, either.
The dollar took a mini-tumble today once word of this monster got out. What is so interesting, however, is how the Fed's interest rate strategy is not only not having any effect on US consumption (neither of imports nor domestic products), but having in fact a positive effect on it by supporting a strong dollar which can command imports. Per the Fed's data, the real broad dollar was up 4.4% y-o-y in November and the real major currencies dollar was up 9.7% y-o-y.
As long as the Fed tightens, foreign states and capital are willing to loan us the money to consume, putting us deeper in debt but keeping the whole wheel turning. When the Fed stops tightening (in relative terms as well as absolute -- note the ECB raised rates earlier this month for the first time in 2.5 years), the incentives for foreign capital to buy the dollar weaken notably. Then do we return to the days of 2003 when just four fingers (the Bank of Japan, the People's Bank of China, the Central Bank of China and the Bank of Korea) were all that held the water behind the dike?