skip navigation

By the Numbers

Featuring brief segments of economic analysis from our senior economist Michael Bazdarich, PhD.

The economic analysis we previously featured in By the Numbers is now available on the Western Asset Blog. This page will no longer be updated.

August Trade Data Bring Conformity to Goods-Sector Data

The US merchandise foreign trade deficit showed a sharp deterioration in August, on falling exports and sharply rising imports. In nominal terms, the merchandise trade deficit rose from $59.3 billion per month in July to $66.6 billion per month in August. In “real” terms, upon adjustment for inflation, this deficit rose from $56.1 billion to $63.4 billion (in 2009 dollars). Based on the August decline alone, it looks like merchandise foreign trade will subtract nearly a full percentage point from 3Q15 real GDP growth.

As adverse as these data are, they do provide some conformity between supply-side and demand-side data for US goods-producing sectors (which is why we focused on merchandise trade above, abstracting from services). Supply-side measures of goods-sector activity, such as manufacturing hours worked, manufacturing industrial production, and factory orders and shipments have all shown steadily negative growth since late-2014. On the demand side of the picture, the corresponding measure of goods GDP growth did indeed decline in 1Q15, but then it showed a strong increase in 2Q15.

There are valid differences between the two sets of data, because goods GDP also includes domestic value-added from shipping, wholesaling and retailing goods, activities that are not reflected in the supply-side measures. Still, it is all but impossible for goods GDP to continue to grow briskly if domestic production of goods is declining. The sharp increases in imports and sharp declines in exports in today’s data indicate that goods GDP will indeed decline within 3Q15 GDP data (to be released later this month), putting goods GDP data more into conformity with the supply-side measures listed above.

To put it another way, while the retail sales data indicate that US consumer spending on goods is growing nicely, the supply-side data (and foreign trade data) tell us that most of those goods are being produced abroad, thus providing only slight stimulus to the domestic economy. With at best sluggish growth in the goods-producing sectors, there is essentially no chance of a meaningful pickup in US growth, in which case our bet is that Federal Reserve tightening steps—when and as they come—will be cautious and halting, having little or no impact on the medium and long ends of the yield curve.

Real Exports & Imports
Real Exports & Imports
Chart Source: Census Bureau. As of 31 Aug 15

Michael Bazdarich

Product Specialist/Economist

Mike brings more than 43 years of experience to his position. "By the Numbers" will address economic data releases that are pertinent to a broad range of investors.

Prior to joining the Firm in 2005, Mike ran his own consulting firm, MB Economics. He earned his PhD in Economics at the University of Chicago.

Sign up to receive email updates as new reports are released.

© Western Asset Management Company, LLC 2020. This publication is the property of Western Asset and is intended for the sole use of its clients, consultants, and other intended recipients. It should not be forwarded to any other person. Contents herein should be treated as confidential and proprietary information. This material may not be reproduced or used in any form or medium without express written permission.
Past results are not indicative of future investment results. This publication is for informational purposes only and reflects the current opinions of Western Asset. Information contained herein is believed to be accurate, but cannot be guaranteed. Opinions represented are not intended as an offer or solicitation with respect to the purchase or sale of any security and are subject to change without notice. Statements in this material should not be considered investment advice. Employees and/or clients of Western Asset may have a position in the securities mentioned. This publication has been prepared without taking into account your objectives, financial situation or needs. Before acting on this information, you should consider its appropriateness having regard to your objectives, financial situation or needs. It is your responsibility to be aware of and observe the applicable laws and regulations of your country of residence.
Western Asset Management Company Distribuidora de Títulos e Valores Mobiliários Limitada is authorised and regulated by Comissão de Valores Mobiliários and Banco Central do Brasil. Western Asset Management Company Pty Ltd ABN 41 117 767 923 is the holder of the Australian Financial Services Licence 303160. Western Asset Management Company Pte. Ltd. Co. Reg. No. 200007692R is a holder of a Capital Markets Services Licence for fund management and regulated by the Monetary Authority of Singapore. Western Asset Management Company Ltd is a registered Financial Instruments Business Operator and regulated by the Financial Services Agency of Japan. Western Asset Management Company Limited is authorised and regulated by the Financial Conduct Authority (“FCA”). This communication is intended for distribution to Professional Clients only if deemed to be a financial promotion in the UK and EEA countries as defined by the FCA or MiFID II rules.