The US trade deficit hit a new record in October, despite Wall Street expectations that it would actually fall. The Commerce Department reported that the US trade deficit in goods and services rose to a record $68.9bn in October, with imports increasing 2.7 per cent while exports rose 1.7 per cent.
This trounced the previous record of $66bn set in September. The rise in the deficit came in spite of lower import prices, which had the stock market going all giddy today, as the lower import prices, easing fears of inflation in the economy, fueled speculation that the Federal Reserve may soon halt their raising of interest rates.
The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that total October exports of $107.5 billion and imports of $176.4 billion resulted in a goods and services deficit of $68.9 billion, $2.9 billion more than the $66.0 billion in September, revised.
October exports were $1.8 billion more than September exports of $105.8 billion. October imports were $4.7 billion more than September imports of $171.8 billion.
Oil and the cars to burn it in was a significant factor in the numbers:
An increase in imports of crude oil, automobiles and televisions outweighed a rise in exports. The shortfall reported by the Commerce Department today exceeded even the highest estimate in a Bloomberg News survey of economists. The U.S. had record deficits with China, Canada and Mexico.
The report led some economists to reduce their forecasts for U.S. economic growth in the fourth quarter. Morgan Stanley trimmed its estimate to 3 percent from 3.4 percent. The eagerness of Americans to snap up foreign-made electronics, clothes and cars is evidence of increasing reliance on overseas producers that’s keeping the economy from growing faster.
Though the spotlight these days is directed at China whenever the words trade and deficit are heard together, and China alone has indeed accounted for $166bn of the $645bn deficit so far this year, and the monthly deficit with that country rose to $20.1bn from $20.5bn in October, the fact is that the US is running substantial deficits in their trade with just about the whole rest of the world, rich countries and poor. The deficit with the OPEC countries of course looms large. But Canada, Germany, Japan, Mexico and other EU and Pacific rim countries are also exporting far more to the US then they are importing in return.
And even though the world’s central banks and oil producers for the time being are able and willing to shoulder the burden of supplying The United States with the capital inflows necessary to finance this deficit, this level of trade imbalance is simply unsustainable. There will be a painful adjustment in the next few years.
There is simply no way to make indefinitely living above your means into a strategy for getting rich, unless of course you’re intending to rob the bank holding your loans when the loans come due.
This trade imbalance is also laying waste to American manufacturing and blue collar middle class jobs. But not to worry, says China’s commerce minister, Bo Xilai, who was quoted by the Communist Party newspaper, the People’s Daily, as American workers are making up for it in such upwardly mobile new career opportunities as Wal-Mart greeters:
“Some people in the United States are complaining that China’s exports have resulted in the loss of jobs there. However, as far as I know, thanks to growing China-US trade, the jobs lost in the manufacturing sector have been more than offset by new jobs in the circulation field,” Bo said.
In fact there’s more bad news buried in these numbers when one looks ahead. One of the big monthly swing factors in US exports are commercial aircraft. And Boeing has had a lucky streak lately. Commercial aircraft exports were up 174% in October. One has to ask oneself if that is a sustainable number, and discounting that boost, the deficit would have been even bigger. Could we see the day, even next year, when the deficit blows past $1 trillion dollars?
Also with the Federal Reserve interest rate tightening now seemingly drawing to a close, while Eurozone interest rates are thought to be headed higher, and focus now back on the deficit in the market and a national debt which is now well north of $8 trillion, one would expect new weakness in the US dollar, which has had a good year, going forward.
Chart courtesy of Calculated Risk.
This article is also available at Bitsofnews.com and Daily Kos.
