October trade in intangibles - and revisions

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Disappointing news from this morning's BEA trade data. The trade deficit rose by $1.9 billion in October to $42.2 billion from $40.3 billion in September, revised. Economist had expected a deficit of $42.7 billion. One part of the story is that exports dropped by $6.8 billion while imports fell by $4.9 billion. The drop in exports may be a result of a combination of global economic slowing and Superstorm Sandy which closed many east coast ports. Increased imports petroleum goods was the other large part of the story. Both imports and exports of non-petroleum goods were down, resulting in a slight improvement in the non-petroleum goods trade deficit.

The good news is that our surplus in intangibles increased slightly in October by $106 million to $14.5 billion. Exports were up by $191 million while imports grew by $86 million. Both royalty receipts (exports) and royalty payments (imports) were down slightly - with exports down more than imports resulting in a decline in the surplus of $30 million. As in previous months, the surplus in business services increased slightly as exports grew faster than imports. As this data indicates, however, the changes in the intangible trade were negligible -- especially compared to the size of the overall deficit.

The really bad news is a surge in the deficit in Advanced Technology Products, which grew by over $2.9 billion. The biggest change was an almost $1.9 billion increase in information & communications technology imports. 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.

Today's release also contains a revision in services data for April through September. Royalty receipts (exports) were revised downward and business services were revised upwards. As a result, the royalty surplus was lowered and the business services surplus was raised. Given that the revisions to business services were larger, the total intangibles surplus was revised upward by a total of $651 million over the six month period.

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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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