The Intangible Economy

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April 12, 2006

February trade in intangibles

While the BEA trade data released this morning showed a slight improvement in our overall trade deficit, our balance in intangibles trade declined. Our surplus declined almost 9.5% to $6.5 billion. This is the lowest surplus since the summer of 2004. The decline in our intangibles trade balance was due mostly to a large increase in imports -- specifically in increased royalties and licensing payments to foreigners. It remains to be seen whether this is a one time spike in royalty payments or the beginning of an ominous trend.

Ironically, the overall decline in our trade deficit was due to a large decrease in imports. According to the Wall Street Journal:

Consumer goods imports -- including furniture and televisions -- fell by $888 million. Purchases of cars and parts made abroad dropped $1.3 billion. U.S. imports of capital goods, like civilian aircraft and medicinal equipment, decreased by $1.5 billion. Purchases of industrial materials from overseas dropped by $185 million.

The average price of a barrel of crude rose by $53.72 to $51.93. But the volume of crude oil imports decreased to 291.03 million barrels, down from 302.81 million. That brought the value of crude imports to $15.64 billion in February from $15.72 billion in January.

The deficit in Advanced Technology Products also declined significantly to $1.4 billion -- the lowest monthly deficit in two years. The smaller deficit was due almost entirely to a major decline in imports of Advanced Technology Products. The decline in imports was across the board: advanced materials, imports down by 2.5%; aerospace, down by 7.4%; biotechnology, down by 18.7%; electronics, down by 3.3%; flexible Manufacturing, down by 12.9%; information and communications, down by 9.8%; life science, down by 11.4%; opto-electronics, down by 6.6%; weapons, down by 10.2%. Only in nuclear technology did imports increase (interesting!).

Many believe the decline in imports will not last and are a reflection of the weak consumer spending in February. (See Consumer Spending, Income Growth Cooled in February.)

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.

Posted by Ken Jarboe at April 12, 2006 9:34 AM

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Posted by: Ken Jarboe at April 12, 2006 1:32 PM

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