US Trade Deficit Up on Oil Imports

Sept. 14, 2009
IHS Global Insight noted that the US trade deficit grew by $4.5 billion in July, partly on increased oil prices and volumes

Imports expanded for the second consecutive month in July 2009, as the US economy accelerated out of recession with considerable momentum. Inventories consequently became lean in certain industries, particularly automotive products, comments Brian Bethune, chief US financial economist, IHS Global Insight..

Bethune pointed to the $32 billion trade deficit for July and noted that it had increased by $4.5 billion. Imports surged, said Bethune, mainly due to sharp increases in crude oil and automotive products. The average price of imported crude oil jumped by just over $3/bbl to $62.48, and the volume of crude oil imports also increased.

Exports also rose for the third consecutive month, up by 2.2%. Bethune considered this evidence that the global economy is picking up steam.

The increase in the trade deficit should be viewed as a positive development, he said. It is a natural consequence of the surge growth in the US economy and the switch in the inventory cycle from a negative drag on growth in the first half of 2009 to positive juice in the second half.

Commenting further, Bethune said the gains in crude oil imports are both price and volume related. Average import prices soared from $51.21 in May to $62.48 in July, and the volume of petroleum imports also picked up over this period, but inventories of petroleum products have moved up to above normal levels, so this recent pop in crude oil imports has pretty much run its course, he noted.

The sharp rise in automotive product imports is connected with the fact that auto production was suppressed in the second quarter as GM and Chrysler were in bankruptcy proceedings. As a result, auto inventories were already relatively lean at the end of June, and that was before the "cash-for-clunkers" program kicked in and cleared out inventories of certain models with a vengeance. As a result, we are in for a couple more months of fairly strong gains in automotive product imports in the third quarter, said Bethune.

On the export side the good news is that we have seen three months of consecutive gains in exports, driven by key capital goods industries such as aircraft and semiconductors. This corroborates evidence that the global economy is indeed picking up quite a head of steam.

Bethune concluded that the bottom-line is that the surge in the July trade deficit should be viewed as good news. It is a sign that the US economy is accelerating out of recession early in the third quarter, and in the short space of several months the inventory situation has changed dramatically in certain critical industries from a situation of excess supply to relative tightness. This is driving increases in production that require imported components.

On top of this, we are seeing steady growth in exports, suggesting that we are moving into a synchronized global expansion. The synchronized global expansion provides some needed insurance against a possible stall in growth momentum as fiscal stimulus measures aimed at spurring consumer spending and housing demand expire in the second half of 2009.

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