Saturday, August 11, 2012

Global Trade and U.S. Exports Are at Record Highs

No sign of recession based on record world trade volume in May and record U.S. exports in June.
According to perma-bear Gary Shilling this week, "We're already in a global recession," and ECRI's Lakshman Achuthan said in July that "the [U.S.] economy is in a recession already."  

But if the U.S. and world economies are in recession, why are merchandise world trade and U.S. merchandise exports at all-time record high levels, see chart above?  The CPB Netherlands Bureau for Economic Policy Analysis is reporting that world trade increased by 2.5% in May to the highest level on record (see blue line in chart).  May's increase in world trade volume was the highest monthly gain since December 2009.  The slight decreases in Europe's exports (-0.1%) and imports (-0.3%) in May were more than offset by strong gains in Asia's exports (5.1%) and imports (7.8%).  Of course, the CPB reports comes out with almost a 2-month lag, so world trade might have declined in June and July. 

Separately, the IMF's latest World Economic Outlook points to downside risks in Europe and the U.S. that could stall the global economic recovery, but the IMF is still predicting world GDP growth of 3.5% this year and 3.9% next year.  Both of those growth rates would be above the 3.2% average annual growth in global GDP since 1980, and far from the negative growth rates in 2008 Q4 of -7% and -6% in 2009 Q1 during the worst of the global slowdown.        

The BEA reported this week that both total exports ($185 billion) and goods exports ($133 billion, see red line above in chart) reached new record highs in June.  June merchandise exports were 10.6% above the previous peak of $120 billion four years ago, and 61% above the cyclical low of $82.5 billion in 2009.  Similarly, world trade is 6.5% above its previous cyclical high in 2008 and 33% above the cyclical low in 2009. 

Bottom Line: Based on the ongoing increases and record highs for world merchandise trade in May and U.S. merchandise exports in June, and the IMF forecasts for above-average growth in 2012 and 2013,  it seems like it would be hard to make a strong case for either a global or U.S. recession.      

Update: The 174,148 loaded export containers shipped in June from America's largest sea port - Los Angeles - set a new all-time record high for the month of June, and was an increase of almost 7% above the same month last year.   

35 Comments:

At 8/11/2012 11:11 AM, Blogger Jon Murphy said...

Of course, the CPB reports comes out with a 2-month lag, so world trade might have declined in June and July.

CEIC's data is only a one-month lag (but you do have to pay for it). They are reporting further world trade gains in June (except in Europe).

 
At 8/11/2012 12:15 PM, Blogger J Storrs Hall said...

Actually high and moving up, yes. I'm not sure I would have said "no sign", though. The pre-08 trend line would have had us at 200 or so by now, and the pre-08 slope was distinctly higher than today's. Don't most recoveries regain both the pre-bust trend line and slope?

 
At 8/11/2012 1:47 PM, Blogger Jon Murphy said...

Don't most recoveries regain both the pre-bust trend line and slope?

That is a more academic argument than a practical one because it requires a degree of estimation as to what the trend would have been.

One would have to be blind to look at the data and say no recovery is going on. The official definition of a recovery/expansion, according to the NBER is "the period between a business cycle trough and a peak."

 
At 8/11/2012 1:49 PM, Blogger Henry H said...

Trade seems to be a lagging indicator. Trade hit an all-time in 2008, after the recession started.

 
At 8/11/2012 1:59 PM, Blogger Jon Murphy said...

Trade seems to be a lagging indicator. Trade hit an all-time in 2008, after the recession started.

Are you talking the World Trade line or the Exports line?

US Exports typically move in coincidence to the US economy.

It's not too surprising the World Trade series rose into early 2008: the recession started here then moved to the world. Now, the calls for recession are due to global weakness. Well, the trade line is not showing global weakness.

Mark's bottom line still stands: there are no signs of recession in these indicators.

 
At 8/11/2012 2:12 PM, Blogger Jon Murphy said...

You know...in order for a recession to be occurring now, it would have to be the first recession in economic history to occur while the economy was actually expanding.

It would also be the first recession on record where it was missed by all leading indicators.

Achuthan is a special person. He called for a recession in 4Q11. then he called for one in 1Q12. then in 2Q12. We are now half-way through the third quarter of the year. He has been wrong for 10 straight months. But let him keep calling for recessions. He's bound to be right sooner or later.

One other thing about Achuthan. If you know anyone in the economic forecasting business, ask him about Achutan. The man is a joke. No one takes him seriously, but the media loves him because he sells. Achutan says he has never missed a recession. This is true. But he has also miscalled many recessions. This is what he does: he blankets recession calls based on his (every unreliable) indicator. It's like mining for gold by tearing up every mountain: you'll have a lot of false starts, but eventually you'll be right. If you take anything he says seriously, then I'd suggest you turn your attention to a company who actually gets things right consistently.

 
At 8/11/2012 2:18 PM, Blogger arbitrage789 said...

The U.S. is not in recession at present.

But with regard to Gary Shilling, he is indeed somewhat of a "sourpuss", but nevertheless, he has made some very prescient (and profitable) calls over the last 5 years, particularly with regard to the 10-year Treasury note.

I don't dismiss Shilling's predictions lightly.

 
At 8/11/2012 2:19 PM, Blogger arbitrage789 said...

The principal controversy at present is not whether we are in recession right now, but whether we will go into one in 2013.

No one can prove or disprove a prediction, but I have to say I'm not all that optimistic about economic growth in 2013.

 
At 8/11/2012 2:43 PM, Blogger PeakTrader said...

It looks like a 2012-13 recession:

The American Enterprise Institute
July 27, 2012

"Research from the Federal Reserve finds that that since 1947, when year-over-year real GDP growth falls below 2%, recession follows within a year 70% of the time.

Real GDP expanded at a mere 1.5% annual rate last quarter, and final sales creeped forward at only a 1.2% pace. That pace of growth is fairly pathetic.

Inventories were accumulated at a $66 billion annual rate, which is a rapid pace and implies that production will remain muted as firms work down excessive stockpiles.

Real consumer spending increased at a 1.5% rate, the second slowest quarter since 2009.

a) at least the U.S. economy is growing and b) at least the U.S. economy is doing better than the EU economy. But that’s a case of lowering expectations. America should and can do better."

 
At 8/11/2012 2:45 PM, Blogger PeakTrader said...

"Research from the Federal Reserve finds that that since 1947, when year-over-year real GDP growth falls below 2%, recession follows within a year 70% of the time."

We had 1.8% (revised) real growth last year and it's even worse this year.

 
At 8/11/2012 7:32 PM, Blogger PeakTrader said...

This has been a weak and expensive "recovery:"

Revisions to the 2009-2011 estimates - BEA July 27, 2012

"The percent change from the preceding year in real GDP was revised up from a decrease of 3.5 percent to a decrease of 3.1 percent for 2009, was revised down from an increase of 3.0 percent to an increase of 2.4 percent for 2010, and was revised up from an increase of 1.7 percent to an increase of 1.8 percent for 2011."

 
At 8/11/2012 8:10 PM, Blogger marmico said...

U.S. export merchandise volume might be at a new high but new orders are falling off a cliff.

 
At 8/11/2012 8:20 PM, Blogger Benjamin said...

There isn't as much braying about the need for a "strong dollar" as in years past, a pleasant change.

Evidently, America's right-wing has figured out exports mean money.

 
At 8/11/2012 8:20 PM, Blogger Jon Murphy said...

U.S. export merchandise volume might be at a new high but new orders are falling off a cliff.

Which is an indication of a coming slowdown/recession, not a current one.

 
At 8/11/2012 8:24 PM, Blogger Jon Murphy said...

There isn't as much braying about the need for a "strong dollar" as in years past, a pleasant change.

Evidently, America's right-wing has figured out exports mean money.


It's a double-edged sword. It may mean higher exports, but would mean higher prices at home and lower domestic consumption.

Generally speaking, a rise in exports due to a weakening currency is offset by a decline in consumption. So no, a weaker currency does not mean more money in terms of higher exports. Higher exports due to greater international demand means more money.

 
At 8/11/2012 8:25 PM, Blogger Mark J. Perry said...

Update: The 174,148 loaded export containers shipped in June from America's largest sea port - Los Angeles - set a new all-time record high for the month of June, and was an increase of almost 7% above the same month last year.

 
At 8/11/2012 8:38 PM, Blogger Jon Murphy said...

One of the things we are seeing is US trade with Europe is declining, but being made up with gains with trade with NAFTA, South America, and SE Asia. Also, Japanese automakers moved some of their production to the US. US trade terms with S. Korea is much more favorable (tariffless) than Japan-Korea.

 
At 8/11/2012 9:56 PM, Blogger marmico said...

Which is an indication of a coming slowdown/recession, not a current one

Not necessarily in the general sense. At some future [past] time, NBER may [did] declare that a recession commenced in June 2012 [December 2007] even though Q22012 [Q42007] GDP was positive 1.5% [1.7%].

The point being that June may have been the near term merchandise export peak. Shipments lag orders. Once again, you need to consider the second derivative to recognize turning points.

 
At 8/11/2012 11:14 PM, Blogger PeakTrader said...

The garbage indicator supports Marmico's new orders indicator:

CHART OF THE DAY: The US Garbage Indicator Is Sending An Ominous Sign For The Economy
Jul. 26, 2012

"Among the 21 categories of items shipped by rail, none have a tighter correlation to GDP than waste...an 82 percent correlation to US economic growth.

The more you produce, the more you throw out. Waste carloads are way down."

http://www.businessinsider.com/chart-of-the-day-the-us-garbage-indicator-economy-2012-7

 
At 8/12/2012 8:13 AM, Blogger PeakTrader said...

If a recession began in June, then we had a weak and expensive expansion that lasted only 36 months.

Per capita real GDP remains below the 2007 peak and it's even lower compared to the long-run trend.

Obama added $5 trillion in federal debt, which doesn't include Bush's TARP, which would make the debt even higher:

The Bailout Scorecard
Last update: Aug. 1, 2012

"$700 billion TARP bill and the separate bailout of Fannie Mae and Freddie Mac.

Altogether, accounting for both bailouts, $602 billion has gone out the door—invested, loaned, or paid out—while $309 billion has been returned.

The Treasury has been earning a return on most of the money invested or loaned. So far, it has earned $82 billion.

When those revenues are taken into account, $211 billion is the net still outstanding as of Aug. 1, 2012."

 
At 8/12/2012 8:23 AM, Blogger PeakTrader said...

[i.e. federal debt is lower than it otherwise would've been, over the past few years, because of the roughly $400 billion in cash inflows from TARP.]

 
At 8/12/2012 8:46 AM, Blogger marmico said...

then we had a weak and expensive expansion that lasted only 36 months

I am not convinced that we are in recession even though I was in January 2008. The 2009 recovery/expansion is "sluggish"* because:

1. Residential investment is still in the toilet, and,

2. Total government consumption and investment is pathetic.

*However, when you consider it on a per capita basis (crappy population growth), it seems to be comparably better than "sluggish" relative to prior recovery/expansions.

 
At 8/12/2012 9:00 AM, Blogger PeakTrader said...

Marmico, if population growth was constant, per capita real GDP would be even lower.

This depression is worse than the Great Depression, because government spent so much for so little growth.

http://www.advisorperspectives.com/dshort/charts/indicators/GDP-per-capita-overview.html?Real-GDP-per-capita-since-1960-log.gif

 
At 8/12/2012 9:24 AM, Blogger Rufus II said...

Actually, government spending, in nominal terms, is flat since 2009, and down, probably, 5% in Real terms.

The increased debt comes from Inflows falling like a rock, and not recovering.

 
At 8/12/2012 9:41 AM, Blogger PeakTrader said...

Federal spending is $1 trillion a year more and tax revenue is roughly flat, since 2007, because the additional spending failed to generate enough growth to raise tax revenue.

So, there's roughly a $1 trillion budget deficit this year.

 
At 8/12/2012 9:48 AM, Blogger marmico said...

Marmico, if population growth was constant, per capita real GDP would be even lower.

Think about it. You have it backwards. Basically, productivity growth + population growth (POP) = GDP growth.

The lower the POP, the lower the GDP growth, productivity held constant. POP has been in a secular decline for 60 years.

____________________________

Actually, government spending, in nominal terms, is flat since 2009, and down, probably, 5% in Real terms

Ya, that's my point 2.

So if you adjusted for POP and NIPA government spending, this would be a Reaganesque or Clintonian expansion.

 
At 8/12/2012 9:54 AM, Blogger PeakTrader said...

Marmico, I've been talking about per capita real GDP, not real GDP. Only adding more babies, for example, won't raise per capita real GDP.

The Great Depression Statistics

"The widespread poverty of the Great Depression caused dramatic changes to family life as young couples, worried about their finances, put off having children. The US fertility rate (the number of children born to women aged 15-44) declined by nearly 20% from 1928 to 1935."

******

US birthrate plummets to lowest in 25 years as poor economy puts would-be parents off having children
26 July 2012

"The average number of births per woman has fallen 12 per cent from a peak of 2.12 in 2007, when the economy began to falter.

'And like any recession, it doesn't hit all people equally, and it hit some people much harder than others.'

He added that the effect of the economy on births has been quicker and more enduring than any slump since the Great Depression."

 
At 8/12/2012 1:47 PM, Blogger Ron H. said...

Peak:

"The Treasury has been earning a return on most of the money invested or loaned. So far, it has earned $82 billion."

Is that interest earned or interest paid?

 
At 8/12/2012 1:55 PM, Blogger Ron H. said...

Peak:

"Federal spending is $1 trillion a year more and tax revenue is roughly flat, since 2007, because the additional spending failed to generate enough growth to raise tax revenue."

As everyone but believers in magic would expect.

 
At 8/12/2012 2:07 PM, Blogger bart said...

There are plenty of negative indicators if one looks:


World trade index

 
At 8/12/2012 2:08 PM, Blogger bart said...

Recession poll

 
At 8/12/2012 4:40 PM, Blogger bart said...

Jon:

What do you use for the services sector like you use INDPRO for the manufacturing sector?

 
At 8/12/2012 4:43 PM, Blogger PeakTrader said...

Ron:

The State of the Bailout

"OUTFLOWS: $602 billion This includes money that has actually been spent, invested, or loaned.

INFLOWS: $391 billion Money returned and paid to Treasury as interest, dividends, fees or to repurchase their stock warrants."

Also, I should've said:

Federal spending is $1 trillion a year more and tax revenue is roughly flat (used "unchanged" instead), since (used "compared to" instead) 2007, because the additional spending failed to generate enough growth to raise tax revenue.

Wikipedia

U.S. Federal Budget - 2007

Total Spending: $2.73 trillion
Total Revenue: $2.57 trillion
Deficit: $161 billion

U.S. Federal Budget - 2012 (projected)

Total Spending $3.73 trillion
Total Revenue $2.63 trillion
Deficit: $1.101 trillion

 
At 8/13/2012 9:41 AM, Blogger morganovich said...

counter-intuitively, jumps in us exports do not correlate as well as one might think with us gdp.

given the (x-im) compnent of gdp, one would at least expect a lower trade deficit to improve gdp, but, in fact, the opposite occurs.


the us trade deficit widens during booms and contracts during recessions.

the us trade deficit widened all through the late 90's, contracted in 2001-2, widened again until early 2008, then contracted sharply during the last recession.

it has been sawtoothing back and forth for the last year or so. any significant further reduction in trade deficit from here would, historically, be a recessionary sign.

it appears that us imports are simply more sensitive to economic activity (or are inputs further out on the bullwhip of the forrester effect) than exports and that despite that fact that their reduction improves reported gdp, it still coincides with poor economic performance.

trade balance is not yet showing a signal i would call definitively recessionary, but it's very definitely in the "worrying and bears watching" category.

if our trade deficit drops much more, i'd get pretty worried.

 
At 8/13/2012 9:44 AM, Blogger morganovich said...

"Marmico, if population growth was constant, per capita real GDP would be even lower."

not necessarily. marmico is right. if population were larger, that would also increase economic activity. you get more workers and more consumers.

you can't just hold gdp constant and use a bigger denominator.

gdp and population size are not independent variables.

 

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