Trade Gap Narrows, But Exports Decline in February

More

February's trade results provided more mixed messages on the path of the recovery. The U.S. trade deficit actually declined slightly during the month, which is a positive sign. But that occurred while both imports and exports fell. Overall, this report from the Bureau of Economic Analysis isn't a clearly positive sign for the direction of the global economy.

Before getting into the numbers, here's the historical chart on trade:

trade 2011-02.png

Let's start at the bottom. The trade gap (purple line) was a little smaller in February. It declined by $1.2 billion to $45.8 billion. Generally, economists herald the trade deficit shrinking as a great sign. In this case, however, we can't get too excited about the change.

That's because both imports and exports also declined. Imports declined more than exports, which explains why the trade gap also fell. In February, exports declined $2.4 billion to $165.1 billion. Meanwhile, imports dropped $3.6 billion to $210.9 billion.

This may signify a decline in demand, both domestically and globally. If that's the case, then the economy will have even more difficulty recovering. At least domestically, this didn't appear to be the case, as sales soared in February. But there's another possible explanation for the decline in trade activity: perhaps rising fuel prices drove up freight costs and persuaded people to spend more domestically, instead of obtaining goods from abroad.

The virtually nonexistent change in the exchange of services suggests this latter theory. Both imports and exports of services were virtually flat in February. Instead, the slower trade resulted from fewer goods being exchanged. Since it costs more energy to ship goods, this could explain the slow down.

Here's a chart showing some of the goods where imports and exports increased or declined by the most from January to February:

trade 2011-02 goods.png

On the exports side, it's interesting to note that auto exports declined by the most. You might think that this lends credibility to the theory that blames rising freight costs on the decline in trade. Domestically, auto sales had a pretty good February. But the largest increase in exports came from civilian aircraft -- another big item to move.

On the imports side, foreign demand for oil dropped in the U.S. This is a little surprising, as we did not see gasoline demand cut by anything near 20% during the month, which implies that Americans were consuming more domestic oil in February to make up for the foreign oil the nation did not import.

It's hard to know for sure precisely why trade slowed in February, but the change is a little troubling. The decline in exports is the largest since January 2009, and it ended a trend of exports rising for 5-months straight. As the global economy expands, trade should as well, but it's pretty clear that rising energy prices are having some effect. Either they're dampening demand or forcing nations to more heavily rely on their domestically-made products as freight costs rise.

Jump to comments
Presented by

Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.
Get Today's Top Stories in Your Inbox (preview)

The Time JFK Called the Air Force to Complain About a 'Silly Bastard'

51 years ago, President John F. Kennedy made a very angry phone call.


Elsewhere on the web

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register. blog comments powered by Disqus

Video

Adventures in Legal Weed

Colorado is now well into its first year as the first state to legalize recreational marijuana. How's it going? James Hamblin visits Aspen.

Video

What Makes a Story Great?

The storytellers behind House of CardsandThis American Life reflect on the creative process.

Video

Tracing Sriracha's Origin to Thailand

Ever wonder how the wildly popular hot sauce got its name? It all started in Si Racha.

Video

Where Confiscated Wildlife Ends Up

A government facility outside of Denver houses more than a million products of the illegal wildlife trade, from tigers and bears to bald eagles.

Video

Is Wine Healthy?

James Hamblin prepares to impress his date with knowledge about the health benefits of wine.

Video

The World's Largest Balloon Festival

Nine days, more than 700 balloons, and a whole lot of hot air

Writers

Up
Down

More in Business

Just In