Some good economic news this morning as the trade data released this morning by BEA shows the U.S. trade deficit dropped by $1.9 billion to $48.7 billion in May. Exports were up by $0.4 billion and imports were down by $1.6 billion. The decline was in line with economists' expectations, according the Wall Street Journal.
The not-so-good news was that the improvement in the deficit was due to a sharp decline in oil imports (down by over $3.2 billion) which was the result of lower oil prices. Imports of non-petroleum goods increased and overall exports were basically unchanged. While decreasing oil imports is an important step to lowering the trade deficit, getting the non-petroleum goods deficit down is also key. Lower oil prices help, but solving our trade problem will take more than lower oil prices. And in the regard, the overall trend over the past year and a half has not been good - with the non-petroleum goods deficit generally increasing while the petroleum goods deficit generally holding steady.
The somewhat-good news is that our trade surplus in intangibles improved in May after declining in April. The intangibles surplus was up ever so slightly (by $99 million) to just over $13 billion. Royalty payments increased slightly, with both exports (payments received) and imports (payments paid out) up. Business services also saw an increase in exports of $227 million and in imports of $144 million.
The bad news concerns the deficit in Advanced Technology Products, which surged by over $2 billion in May to $8.7 billion. The overall decline was lead by an increase in information and communications technology (ICT) imports, reversing April's big import drop. But almost every other category saw a deterioration of this trade position as well (flexible manufacturing, electronics and weapons being the exceptions). 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.