skip navigation
Blog

Stay up to date on timely topics and market events. Subscribe to our Blog now.

ECONOMY
December 07, 2021

Trade Balance Improves Explosively in October—Signal or Noise?

By Michael J. Bazdarich, PhD

Stay up to date on timely topics and market events. Subscribe to our Blog now.

The US balance on foreign trade improved dramatically in October, to a deficit of -$67.1 billion, from -$81.4 billion in September, as exports rose 8.1% versus a 0.9% rise in imports. Export gains were recorded for most types of goods, with especially sharp gains for industrial supplies, mostly oil, and food, mostly soybeans. In terms of geographic areas, far and away the largest export increases were in trade with Canada, China and Hong Kong.

When advance measures of these data were announced last week, along with data on consumer spending, many Wall Street houses took the trade data as a sign of sustainable improvements in foreign trade, and they consequently marked their GDP forecasts higher, to the 7% to 9% range for 4Q. We are inclined to be more circumspect concerning the gains.

As impressive as the October export gains appear, they were to a great extent a reversal of export weakness in September. So, average together the September and October data, and you get an uptrend in exports, but not nearly as explosive a one as the October data would suggest. Similarly, the big increases in oil and food exports—and in exports to China and Hong Kong—work to offset sharp declines in preceding months, suggesting a short-term export rebound rather than a durable growth trend.

The accompanying chart provides some perspective on things. The foreign trade data obviously contain a lot of “moving parts,” components such as oil, food and motor vehicles that show a lot of fluctuation/ volatility from month to month. The trade deficit measures including these components show sharp October improvement following a similarly sharp deterioration in September. Abstract from these volatile components, as per the heavier blue line, and the “underlying” trade balance shows a steadily declining trend, some improvement in October, but nothing out of the range of random fluctuations seen in preceding months.

Exhibit 1: US Foreign Trade Balance, Annualized Seasonally. Adjusted Trade Balances
US Foreign Trade Balance, Annualized Seasonally. Adjusted Trade Balances
Source: Census Bureau. As of 31 Oct 21. Select the image to expand the view.

Meanwhile, we have not even tried to fold in the disruptive effects on trade flows of the container ship traffic jam bedeviling Southern California seaports.

Bottom line: Perhaps the October data do indeed mark a break in trend that will lead to a constant boost to growth from the export side. However, our inclination is to think that the October gains were somewhat spurious and that going forward, foreign trade will remain the constant drag on US growth that it has been throughout recent years.

© Western Asset Management Company, LLC 2022. 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 authorized and regulated by Comissão de Valores Mobiliários and Brazilian Central Bank. 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”) (FRN 145930). This communication is intended for distribution to Professional Clients only if deemed to be a financial promotion in the UK as defined by the FCA. This communication may also be intended for certain EEA countries where Western Asset has been granted permission to do so. For the current list of the approved EEA countries please contact Western Asset at +44 (0)20 7422 3000.