Wednesday, December 22, 2004


Brad Setser writes
Forget the headline number: we knew it[October trade data] would be bad because of oil. Look at what happened to non-oil imports and export growth. Export growth is still strong (y/y), at 12.8% or so. But export growth also seems to be slowing: the y/y increase was 14% in August, 13% in September, and 11% in October ... the monthly data bounce around a bit, but the basic trend seems pretty clear.

Conversely, non-oil import growth if anything seems to be accelerating -- year to date it is now almost 15% (14.7%), up from its YTD increase earlier in the year. That implies each new monthly data point is showing a stronger y/y increase ... Imports from China are up 28% y/y; even imports from old Europe (eurozone) are up 12% y/y (not bad, given the fall in the dollar/ rise in euro in 2003). (Growth in US imports from the UK and Japan have lagged the overall market, as one, suspects has growth in US non-oil imports from Mexico).

All this is bad news -- there is no evidence yet that the underlying expansion of the US trade deficit is close to turning around, even though the dollar fell substantially in 2003.
But I thought that a falling dollar was supposed to reverse the trade deficit. Clearly it can't last, but any rigidity makes the adjustment all the more painful. Why????


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