Monday DataDive: May’s Trade Deficit, Factory Orders and June’s ISM Reports

By rjs, a rural swamp denizen from Northeast Ohio, and a long-time commenter at Naked Capitalism. Originally published at MarketWatch 666.

May’s Trade Deficit

Other than the employment situation, the key economic release of the past week was our International Trade in Goods and Services for May(pdf) from the Census bureau, which showed that our trade deficit grew by 12.1% as our exports slumped and our imports jumped from the levels of April.  Seasonally adjusted May exports of $187.1 billion, $0.5 billion less than revised April exports of $187.6 billion, combined with May imports of $232.1 billion, $4.4 billion more than April imports of $227.7 billion, resulted in a May goods and services deficit of $45.0 billion, up from $40.1 billion in April.  Our seasonally adjusted trade deficit in goods increased by $5.0 billion, as exports of goods decreased $0.9 billion to $130.3 billion, and imports of goods increased $4.2 billion to $193.7 billion, while our trade surplus in services increased by $0.2 billion.  Exports of services increased by $0.4 billion to $56.8 billion, and imports of services increased $0.2 billion to $38.4 billion.  On an unadjusted basis, our goods deficit was at $64,887 billion in May, a bit more than the $63,400 billion seasonally adjusted amount.

The change in imports of goods from April to May reflected increases of imports in all end use categories.  Imports of industrial supplies and materials rose $1.05 billion to $57.184 billion, on a $713 million increase of crude oil imports, and $682 million of other petroleum products, while imports of natural gas fell $250 million; this despite the fact that oil prices averaged $96.84 in May, down from $97.82 in April, and down from $108.06 a year ago.  Imports of consumer goods rose $1.03 billion on a $1,890 million jump in cell phone imports, while imports of pharmaceuticals fell $967 million and TV & video equipment imports fell $181 million.  Automotive vehicles, parts, and engines accounted for another $788 million increase in imports, while imports of foods, feeds and beverages rose $370 million to $9.919 billion, on increases of $178 million of fish and shellfish, $111 million in fresh fruits and juices, and $98 million of green coffee beans, while imports of meat products fell $111 million. In addition, imports of capital goods rose $347 million to $45.694 billion, on $269 million more computer accessories, $211 million more in imported civilian aircraft, and a $198 million increase in imported semiconductors, offset by $225 million of declining imports of telecommunications equipment and $261 million less in civilian aircraft engines. In addition, imports of other goods not included in an end use category rose $0.5 billion.

FRED Graph

Changes in exports of goods from April to May included a $1.2 billion decrease in exports of consumer goods to $13.06 billion, led by a $757 million decrease in exports of jewelry and a $512 million decrease in exports of gem diamonds; this was partially offset by a $97 million increase in exports of pharmaceuticals. A $0.9 billion decrease in exports of industrial supplies and materials, led by a $1,130 million decrease in exports of non-monetary gold and a $229 million decrease in exports of organic chemicals was partially offset by a $439 increase in exports of fuel oil.  A $0.1 billion decrease in exports of and foods, feeds, and beverages, including $72 million less wheat exports, $66 million less oil & oilseeds exports, and a $65 million decrease in exports of soybeans, was partially offset by a $69 million increase in exports of dairy products and eggs.  End use categories that saw exports increase included an $0.8 billion in capital goods exports, where exports of civilian aircraft rose $1,365 million to $5,115 million, exports of telecommunication equipment fell $373 million to $3,160 million, and exports of autos engines and parts rose $320 million to $13.06 billion.  In addition, exports of other goods not otherwise categorized rose $172 million to $5.015 billion.

Our trade with China accounted for $27.9 billion of the unadjusted $64.9 billion May deficit in goods, which was up from $24.1 billion in April.  Other major bilateral trade deficits on an unadjusted basis in May, include a $10.8 billion deficit with the European Union, a $6.3  billion deficit with OPEC, $5.8 billion with Germany, $5.4 billion with Japan, $5.3  billion with Mexico, $2.7 billion with Saudi Arabia, $2.5 billion with South Korea, $2.3 billion with India, $2.3 billion with Ireland, $1.9  billion with Canada, and $1.5 billion with Venezuela.  Small bilateral trade surpluses were recorded with Hong Kong at $3.0 billion, Australia at $1.4 billion, Singapore at $1.2 billion, and Brazil at $0.9 billion.

Our FRED graph above shows the monthly changes positive or negative, in exports in blue, and the monthly change in imports in red.  You should remember from our GDP coverage that an increase in exports adds to the GDP change, and a decrease in exports subtracts from it, while an increase in imports subtracts from GDP, while a decrease in imports adds to it.  This 12.1% increase in our May trade deficit, on the heals of a 8.5% wider trade shortfall in April, this virtually assures negative impact from net trade on 2nd quarter GDp    Indeed, forecasters are already writing that in; after this report, Goldman Sachs cut its estimate for second quarter GDP growth by 0.2% to 1.6%, while Barclays was even more bearish, cutting their 2nd quarter estimate from 1.6% to 1.0%

Factory Orders and June’s ISM Reports

This week both of the widely followed Purchasing Manager’s Indexes (PMIs) were released by the Institute for Supply Management (ISM).  Understand that as diffusion indexes, neither track hard data, but merely present situations in a number of industries as derived from a survey of purchasing managers in those industries.  The individual indexes are based on questionnaires sent to these execs on the current conditions in their industry.  Each response of "better" out of a each hundred queries adds one to the index; each response of "the same" adds a half point, and responses of "worse" are not counted.  Hence, any reading over 50 indicates a majority of those polled reported that conditions in their industry are improving.  The composite indexes are, in turn, a seasonally adjusted average of several indexes in different aspects of the given business.  No weighting is given for the different sizes of businesses polled, nor whether conditions are a whole lot better, just marginally so, or a whole lot worse.  Nonetheless, these indexes are a widely watched indicator of business conditions, and even those who dismiss them still report on them monthly.

Released on July 1st, the June Manufacturing ISM Report indicated slight expansion (over 50) in June, after reporting the worst contraction since 2009 in May.  The manufacturing PMI, which is a composite index based on equal weights of the new orders, production, employment, suppliers deliveries, and inventories indexes, registered 50.9 in June, up from 49.0 in May.  The new orders index increased by 3.1% to 51.9%, the production index rose 4.8 points to 53.4%, but the employment index indicated contraction in manufacturing employment for the fist time since September 2009.  Among other indexes included in the PMI, inventories improved from a shrinking reading at 49.0% in May, to a slowly growing reading at 50.5%, and suppliers’ deliveries were faster at 48.7% to unchanged at 50.0% in June.  Apparently fast deliveries are indicative of not much work.  Other indexes not part of the composite showing faster growth include exports, up 3.5 to 54.5%, and imports, up 1.5% to 56.0%.  Meanwhile, the prices index went from 49.5 in May to 52.5 in June, meaning more prices are now increasing than decreasing.  Two indexes that remain contradictory are orders backlog, which declined from 48.0 to 46.6, and customers inventories, which shrunk from 46.0% in May to 45.0% in June.

Although this report covers 18 manufacturing industries,  the ISM does not break out the PMIs for specific industries; rather, they just list those that are expanding, in order from growing fastest, to barely growing.  Those that are seeing the greatest expansion in new orders include apparel and leather goods, paper, and furniture manufacturers.  Those that are seeing the most expansion in production are again apparel and leather goods, electrical equipment and appliances, and furniture.  Those that are seeing the greatest increase in hiring include wood products, furniture manufactures and paper products producers.  Those that are seeing the greatest slowing of supplier’s deliveries are oil & coal products, furniture, and fabricated metal products.  Just four manufacturing industries are reporting overall slowing: textile mills, transportation equipment, chemical products, and computers & electronics.

FRED Graph

Released two days later than the manufacturing report, the June Non-Manufacturing ISM Report showed the slowest growth since February 2010. The composite non-manufacturing index (MNI) was down 1.5 points from May’s 53.7% at 52.2%; forecasts were for a reading of 54.4%.  Of the four equally weighted diffusion indexes that make up the NMI composite, the business activity index fell 4.8 percentage points from 56.5% to 51.7%, and the new orders index fell 5.2 from 56.0% to 50.8%, the lowest reading for new orders since July 2009.  The employment index, important in that the service sector now accounts for 5 out of every 6 private sector jobs, rose 4.6 points from 50.1% in May to 54.7% in June, indicating that at least hiring is picking up.  Finally, the suppliers deliveries index fell slightly, from 52.0% to 51.5%, indicating that deliveries were slightly less slow in June.

Readings for the other indexes that don’t contribute to the composite include the inventory index, which rose from 51.5% to 54.5%, indicating expanding inventories, and an index for inventory sentiment, which was said to be too high in May at 62.5%, and slipped a bit to 61.5% in June, and the index for prices, which improved to 52.5% from 51.1%, as prices rose even more. The backlog of orders increased, from 51.5% to 52.0%, but the new exports index slipped into contraction at 47.5% from the stagnant 50.0% in May.  The import index reversed it’s May contraction, rising 4.0 points from 49.5% to show expansion in June at 53.5%..

Of the 14 service industries showing growth in June, those with the greatest growth were, in order;  management and support services, transportation and warehousing, wholesale trade, retail and information.  The four service sectors indicating contraction were mining, educational services, health care and assistance, and other services.  The FRED graph above shows the history of the NMI since it’s inception January 2008 in blue, and the track of the older manufacturing PMI since 2000 in red, with recessions marked by grey vertical bars.  Also included, in light grey, the track of the older ISM non-manufacturing Business Activity Index, which is now incorporated into the NMI, as a indicator of the historical track of the service industries before the creation of the composite NMI.

As an alternative to the soft readings from the ISM manufacturing survey, we can find the hard data for the manufacturing sector in the Full Report on Manufacturers’ Shipments, Inventories and Orders for May (pdf), barely covered because it’s released a week after the Advance Report on Durable Goods (pdf), which is a first estimate covering just the durable goods orders, shipments and inventories.  The full report, based on more complete data, often revises the durable goods orders slightly, but these revisions are rarely mentioned.  Census admits to the probability of a sampling error, as the overall survey represents roughly 60 percent of the estimate, with a bias to including large companies with $500 million or more in annual shipments in lieu of smaller ones, but doesn’t quantify it.  Since most analysts are interested in the most forward looking data, this report is usually watched for the change in new factory orders.

FRED Graph

Seasonally adjusted new orders for manufactured goods, or in common parlance, "new factory orders" rose by $9.9 billion to $485.0 billion in May, 2.2% above April’s orders level; but still below the record $492.0 billion in new orders set in February…April had registered a 1.3% increase, following a 4.7% fall in orders in March; unadjusted data shows new orders at $499.4 billion, up from $473.98 billion in April.   New orders for durable goods increased $8.2 billion or 3.7 percent to $231.2 billion, a change which was revised from the 3.6% increase in new orders for durable goods reported the week before last.  New orders for nondurable goods increased $1.8 billion or 0.7% to $253.8 billion, and since volatile monthly orders for for big ticket aircraft often cause large swings in the aggregate totals, new orders are often quoted ex-transports; on this basis, new factory orders were up 0.6% in May.

New orders for transportation equipment, which have driven the headline gains in 3 of the last 4 months, increased $7.3 billion or 10.9% to $74.5 billion, that in turn was largely driven by a $6.3 billion jump in orders for non-defense aircraft at $18,613 in May, a line item which usually reflects Boeing’s orders. Orders for ships and boats also rose, but orders for motor vehicles fell by $401 million despite the highest June car sales since November 2007 as the big three all reported full-size pickup truck sales of greater than 20 percent. Other than transportation, there were also increases in new orders for machinery, computer and electronic products, appliances and components, and primary metals. Orders for non-defense capital goods excluding aircraft, also known as core capital goods, increased 1.5%, revising the 1.1% increase reported, in the durable goods report last week.  Included in "equipment and software” in national accounts, these core capital goods are direct contributions to the investment component of GDP.  The FRED graph for this report covers the current series since 2000; it shows total factory orders in green, orders for durable goods in red, and new orders for non-defense capital goods excluding aircraft, or so called core capital goods, in blue.  Factory orders are not adjusted for price inflation.

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About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.


  1. diptherio

    MEGO…omg…somebody wanna point out the important bits of this? My takeaway is that the domestic economy is crappier than the MSM is letting on. A (quickly) growing trade deficit doesn’t sound real good for US jobs.

    1. beene

      The balance of trade since 1980 in graph form would look like an upside down L; just like the economics of the majority of the American citizens growth in this period.

    2. rjs

      obviously, the trade deficit is important because it subtracts from GDP, because it means chinese are employed instead of Americans making the toys we buy, and because it forces either or both the federal govt or the private sector further into debt, cause every dollar of foreign surplus is always offset by either government or private sector deficits…(i explain that here: )
       as long as the US continues to run trade deficits, it is impossible for the federal government to balance its budget while the private sector is deleveraging…every dollar of private sector surplus is always offset by a government sector deficit, and vice versa; its an accounting identity…therefore reducing government deficits will of necessity reduce private sector surpluses accordingly…this can best be seen on the adjacent chart from Goldman’s chief economist Jan Hatzius…what you see here is that the financial balance of three sectors (private, government, and foreign) always and must net out to zero; because one sector’s income is always another sector’s spending…

    1. rjs

      trade deficit was lower in february & march, just turned lousy again over the past two months…

      if it’s a factor for the Fed, it’s a minor one

    1. rjs

      as long as i dont tire of editing my posts for prime time; im not a natural typist, & never did learn to use the shift key…

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