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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.

May Foreign Trade Data Reverting to (Unfavorable) Trends

Foreign trade data for May were released this morning and showed deterioration in the US trade deficit, with exports dropping more than imports. Much of these declines marked a reversion to underlying trends. That is, due to a strike that hit the California ports of San Pedro and Long Beach earlier this year, both export and import volumes were overly depressed in February and March, then in April both made up for lost time, in effect, after the end of the strike. We then saw a move back toward underlying trends with the May trade data.

Unfortunately, those underlying trends are not favorable. As seen in the accompanying chart, exports have been trending lower since last October, and after the aforementioned strike effects over February–April, May export levels are right in line with on an ongoing downtrend. On the other side of the ledger, imports were on a steady uptrend last year, and after some jagged, strike-related interruptions of that trend over February–April, May import levels were right back on a rising trend line.

Falling exports and rising imports mean a steady rise in the trade deficit and, thus, a steady drag on US factory-sector production. As we have related before here, US factory-sector activity has flagged noticeably this year, driven by weakening in capital spending and exports. The recent data show both of those drags still in place, indicating, in turn, that the weakening trend in factory output is continuing as well.

Manufacturing is not a large enough sector to single-handedly pull the US into recession, but it is large enough that its current stall has imparted a noticeable hit to underlying GDP growth. At the start of the year, we were expecting growth in the 2.0%–2.5% range. The emerging softening in manufacturing has pushed underlying growth as much as a full percentage point lower.

Real Imports and Exports of Goods
Real Imports and Exports of Goods
Source: Census Bureau. As of 31 May 15

Michael Bazdarich

Product Specialist/Economist

Mike brings more than 45 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.

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