BEA trade data released this morning is a case of the good, the bad and the ugly.
The good news is that their revisions of the 2005 data show our intangibles trade was much better in July August, September, and November of last year while worse in October and December. The net result of these revisions is a higher surplus than previously reported: $7.3 billion in November, declining to $7.1 billion in January. The revisions show that the rate of growth in intangible imports for 2005 was slower than previous estimated and the rate of growth of intangible export slightly higher. However, the rate of growth of intangible imports remains higher than that of intangible exports.
The bad news is that our intangibles trade surplus in January of 2006 declined by $84 million and had also decline in December, contrary to earlier data which showed it basically unchanged in that month.
The ugly is the size of our total trade deficit which grew by 5.3% to a record $68.51 billion in January. As the Wall Street Journal noted, the increase was due to a surge in imported goods:
"We may be selling more overseas but we just cannot match our demand for foreign goods," independent economist Joel L. Naroff wrote in a note.
. . .
Imports of foods and beverages rose $370 million. Imports of foreign cars and auto parts rose by 5.6% to $22.7 billion. Imports of computers and consumer goods were also up. Demand for foreign food products climbed by 6.2% to $6.4 billion amid higher demand for wine and other food products. Industrial-materials imports rose $1.37 billion, pushed higher by petroleum products.
According to the New York Times:
A 3.5 percent jump in imports in January appear to reflect the sharply higher consumer spending during the month and rising price of oil, gasoline and other energy products. Automobile and car parts imports increased 5.3 percent during the month and the country spent 4.3 percent more on petroleum-based imports.
Exports were up 2.5 percent from December, with soybean shipments doubling and airplane sales up 44 percent. But sales of most other American goods and services changed only modestly in January.
The volume of crude oil imports actually dropped in January by almost 9 million barrels. But since the average price rose by $2.17, the value of crude imports increase by roughly $220 million. Total imports of all energy-related petroleum products increased to $22.58 billion.
In other words, our intangible surplus pays for one-third of our foreign energy bill.
The deficit in Advanced Technology Products grew slightly in January to almost $3.4 billion, but both exports and imports dropped by about $2 billion each. The last monthly surplus in Advanced Technology Products was in June 2002 and the last sustained series of monthly surpluses were in the first half of 2001.
Let me repeat what I have said before, the power of intangibles is how they re-invigorate all sectors of the economy. Utilizing that power to transform the entire economy, including manufacturing, is the only way we will get our dangerous trade deficit under control.
Note: we define trade in intangibles as the sum of "royalties and license fees" and "other private services". The BEA/Census Bureau definitions of those categories are as follows:
Royalties and License Fees - Transactions with foreign residents involving intangible assets and proprietary rights, such as the use of patents, techniques, processes, formulas, designs, know-how, trademarks, copyrights, franchises, and manufacturing rights. The term "royalties" generally refers to payments for the utilization of copyrights or trademarks, and the term "license fees" generally refers to payments for the use of patents or industrial processes.
Other Private Services - Transactions with affiliated foreigners, for which no identification by type is available, and of transactions with unaffiliated foreigners. (The term "affiliated" refers to a direct investment relationship, which exists when a U.S. person has ownership or control, directly or indirectly, of 10 percent or more of a foreign business enterprise's voting securities or the equivalent, or when a foreign person has a similar interest in a U.S. enterprise.) Transactions with unaffiliated foreigners consist of education services; financial services (includes commissions and other transactions fees associated with the purchase and sale of securities and noninterest income of banks, and excludes investment income); insurance services; telecommunications services (includes transmission services and value-added services); and business, professional, and technical services. Included in the last group are advertising services; computer and data processing services; database and other information services; research, development, and testing services; management, consulting, and public relations services; legal services; construction, engineering, architectural, and mining services; industrial engineering services; installation, maintenance, and repair of equipment; and other services, including medical services and film and tape rentals.
Ken, That you rely on the BEA's numbers to determine your curve of tangibles and intangibles, is simply missing the point Haussman makes: Government methodologies are not tracking the real value associated with America's intangible assets.
Let me see if I can straighten you out: Intel sends the masking blueprints for its chips from the US out to Taiwan: No export value registered for the US.
Intel manufacturing its chips in Taiwan is not even a licensing arrangement-- it's an ousource production arrangement: No intangibles fee flowing back to Intel.
Nothing so far captured in your "intangibles" ledger.
Taiwan fab finishes chips, ships them back to US, Intel pays 8 dollars a chip to "import" its own
chips: US Gov't records manufactured goods import, trade "deficit" now exists as far as gov't ledgers are concerned.
Or,
Intel pays 8 dollars per chip, and has them shipped from Taiwan to Malaysia, where Dell installs them into laptops, which are then "imported" to US customers: Gov't records import value of the laptop, including the retail cost of $200 for Intel's 8 dollar chip.
Never mind the 192 dollars of profit Intel makes, while the Taiwan fab makes 8-- economists, and you too apparently, are all up in arms about how the US economy is drowning in debt... meanwhile the data (if you use the full set of data counting the export of Intel's intellectual property that is ignored by your "intangibles" metric) the US has a real export of capital value of 192 (Intel sold something across borders and got a net 192 dollars profit for it), and and an import of 8(Intel spent 8 dollars to purchase the manufacturing service in Taiwan).
The Globalization of production logistics has inverted cost recognition, but conventional ledgers for what consititutes trade is looking at simple dollar flow, instead of value flow. The greatest profits (value) in history are flowing to US companies (take a look at corporate earnings)... It makes no sense then to say America is drowning in debt-- occam's razor: the simple answer is usually the right one: it's a lot harder to explain why our economy is so strong given all that debt-- it's much easier to ask whether the debt data being used are correct. You wouldn't use a computer from 1970 to do any serious computational work, so why would you rely on a data tracking methodology from that era to do analysis?
What is this all about.
I stumbled across your blog while I was doing some online research. I was very impressed with the information presented here. Yes, the good news is always accompanied by bad news, isn't it? At this point, we may count ourselves lucky there IS any good news!