June's trade data released this morning was not good news -- unless you really like the huge trade deficits of old days of the last decade. In fact, the news is horrible. The trade deficit jumped to $49.9 billion from $42.0 billion in
May. Exports dropped by $2.0 billion and imports jumped by $5.9 billion. And once again, oil was not the culprit. Our trade deficit in petroleum products was roughly steady while our trade deficit in non-petroleum goods dramatically worsened (see chart below).
The jump in the deficit was also unexpected. According to the Wall Street Journal, economists had expected the deficit to be $42.7 billion in June.
Our intangibles trade surplus resisted the import onslaught, however, to stay relatively stable (declining by a mere $55 million). Exports rose slightly in both royalties (payments received) and private services while private services imports dropped and royalty payments paid-out (imports) grew slightly. A stable intangibles surplus is little comfort, however, in the face of such large and growing goods deficits.
Our deficit in Advanced Technology Products also jumped in June to over $8.4 billion -- up from a deficit of $5.8 billion in May. This is the worst monthly deficit since the government started publishing data specifically on Advanced Technology Products. The June number was mainly due to a surge in imports of information and communications technologies. As I noted above, that may be taken by some as a good sign of increased consumer spending but it is a bad sign for a sustainable and balanced economic recovery. 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.
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.
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