Brief Thoughts about Friday's US Trade Report

The US reports November trade figures on Friday. The consensus expects a modest widening of the deficit to $45 bln from $43.5 bln in Oct. The risk is that there is greater deterioration than the market anticipates.

On the broadest level, growth differentials warn of deterioration. The US economy appears to have grown at its fastest clip of the 2011 in the final quarter, while the euro zone may have contracted, following this week's preliminary indication from the German stats office that the euro zone's largest economy may have contracted by 0.25% in the quarter. Other major US trading partners, including Canada, Japan and China also appear to have slowed in Q4.

Oil prices also rose sharply in November and this pricing adjustment may have boosted the value of imports. The West Coast ports also indicated that November saw a large rise in container imports, the largest in six months. The Journal of Commerce/PIERS data suggests that US container imports from China rose for the first time in eight months (and appeared to carry over at least through early Dec). Offsetting this in part may be a pick up in Boeing foreign shipments in December when 26 planes were exported.

The total value of US exports in Oct was $132.46 bln. In January 2009, when Obama was sworn in and shortly thereafter announced a goal of a 50% increase in exports. the US total exports were $77.88 bln. This would appear to be a 70% increase, but it is misleading because the data is not seasonally adjusted. To get a more accurate handle on US exports, consider that in the first 10 months of 2011, US average monthly exports were $124.16 bln. The monthly average for the same period in 2008 was $110.57 bln. This suggests export growth of a little more than 12%.

The key to US exports, of course, is not who occupies the Oval Office, but the relative strength of the world economy. At the same time, it is important to recognize that the primary way US companies service foreign demand is not through exports, even though in 2011 the US was likely the world's third largest exporter behind China and Germany. The most significant way US companies service foreign demand is through local production. The sales of majority owned affiliates of US companies will sell more than 4 times more goods abroad than was exported from the US in 2011.

Lastly, in terms of foreign exchange impact, we tend to play down the role of US trade figures. Instead we tend to put greater emphasis on capital flows and those determinants over trade itself.