Yearly Trade Deficit Sets New Record Despite MoM Decrease

Could a fall in Imports be due to less discretionary income?

This article first appeared on SchiffGold.

Current Trends

The March trade deficit came in at -$87B. This was the first time in 5 months that a new record had not been set (pink dot below). The Net Goods Deficit remained below -$100B for the fifth straight month. This Trade Deficit comes on the heels of an absolutely massive -$108B Deficit in March. It’s likely that some of the April deficit was counted in March, so expect a rebound in the May number.

Figure 1: Monthly Plot Detail

The table below provides detail.

Monthly Trade Deficit

• Exports grew in both Goods (+3.5%) and Services (+3.3%)
• Imports in goods fell 4.4% but is still up 22.7% from a year ago
• On a Net basis, the Goods Deficit fell 15% while the Services Surplus expanded 7.8%
  • Total Net shows a fall of 19.1% but is still up 32.5% YoY

Looking at Trailing Twelve Month:

• The Total Net Deficit reached a new record of $953B
  • This broke the $937B record last month by almost $16B
  • YoY, the Net Deficit is up 29.7%
  • Compared to April 2020, the TTM Deficit is up 74.1%
• The TTM Services Surplus has fallen 9.6% from $259B to $234B over the last year
  • Over that time, the Goods Deficit has increased 19.4% from $994B to $1.19T

While the monthly number does show a reduction, the annual number catches the bigger trend which is way up! The only thing that could keep the monthly deficit from setting new records is inflation starting to eat up more disposable income.

Historical Perspective

Zooming out and focusing on the Net numbers shows the longer-term trend and shows the magnitude of the current move. The spike down on the far-right side shows how quickly the deficit has exploded. This plot also shows how much larger the Goods Deficit is compared to the Services Surplus. The Deficit spiked back up, but still sits well below where it was just a few months ago.

Figure 2: Historical Net Trade Balance

The chart below zooms in on the Services Surplus to show the wild ride it has been on in recent months. It compares Net Services to Total Exported Services to show relative size. After hovering near 35% since 2013, it dropped to 26% in Aug 2021, recovered to 29.6%, but has fallen back down to 27%.

Figure 3: Historical Services Surplus

To put it all together and remove some of the noise, the next plot below shows the Trailing Twelve Month (TTM) values for each month (i.e., each period represents the summation of the previous 12-months).

Figure 4: Trailing 12 Months (TTM)

Although the Net Trade Deficits are hitting all-time records in dollar terms, it can be put in perspective by comparing the value to US GDP. As the chart below shows, the current records are still below the 2006 highs before the Great Financial Crisis.

That being said, the current 3.91% is the highest since April of 2009 and up from 2.53% in March 2020.

Figure 5: TTM vs GDP

The chart below shows the YTD values. Because the current month is April, this chart only shows four months, but already 2022 is well above prior years by a significant margin. Total 2022 Imported Goods is already larger than the combined Imported Services and Imported Goods from 2021.

Figure 6: Year to Date

What it means for Gold and Silver

The US continues to run massive deficits with its trading partners. The current month is a dip in a longer-term trend. How long will countries continue to accept paper dollars for physical goods? Eventually, the dollars being exchanged for goods will come flooding back to the US. This will likely exacerbate the inflation problem. Gold and silver offer excellent protection in such an environment.

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Data Source: https://fred.stlouisfed.org/series/BOPGSTB

Data Updated: Monthly on one month lag

Last Updated: Jun 07, 2022 for Apr 2022

US Debt interactive charts and graphs can always be found on the Exploring Finance dashboard: https://exploringfinance.shinyapps.io/USDebt/