Friday, October 14, 2005

Maybe the trade deficit wasn't that bad? 

Brad Setser has a very interesting point to make about our trade deficit. After you factor in oil prices, the news looks quite good.

Year to date, non-oil imports are up by 10.4%, that is, non-oil imports through august 2005 are 10.4% higher than imports through august in 2005. But all that growth reflects a surge in imports (a huge surge) at the end of last year.

Non-oil goods and services imports in January: $144.2 billion

Non-oil goods and services imports in August: $144.6 billion

If only the US petroleum import bill (seasonally adjusted) had not increased from $16.6 to $22.6 during the same period ...

August exports were over 12% higher than August exports a year ago, and August non-oil imports were only 7% higher than a year ago. If that is sustained, such a differential would be enough to at least stabilize the non-oil trade deficit.

Which means as well that as oil prices stabilize from here, the trade deficit should begin to shrink. And China's trade surplus is beginning to shrink?