November 2021 charted a total trade deficit of -$80.2B just shy of the record -$81.4B in September. However, the data this month is far more concerning when digging into the details.
After a massive surge in the trade deficit occurred in September, October saw a big pullback to -$67.1B. The details showed that the volatility was driven by a data anomaly where Exported Goods from September were pulled into October. This created a series of Exported Goods values of $149.8B in August followed by $142.7B and $158.8B in September and October. Essentially, $8B moved from September to October, driving the trade deficit to all-time records.
This can be seen in the chart below which shows the dark blue bar third from right showing a dip in an otherwise upward trend.
Figure: 1 Monthly Plot Detail
It seems less likely that November will have a correction materialize in December. Looking at the table below shows why:
- Exported Goods of $156B is $6B higher than the normal value in August and more than $13B larger than the outlier in September
- It is only slightly below the artificially inflated Oct value of $158.8B
- Driving the massive Goods Deficit was a huge 5.1% surge in Imported Goods from $243B to $255B
- The Net Goods Deficit exploded 18% MoM to -$99B and beat the artificially high September -$98B
- The total Net Deficit was actually limited by a 5% rise in Exported Services
- This increased the Net Services Surplus 12.7% MoM from $16.7B to $18.8B
Is it possible that Imported Goods is seeing a similar issue as Exported Goods and there will be a sharp fall next month? Maybe. Could it also be related to a surge in spending due to the holidays? Again, maybe. Looking at last year saw a similar jump from October to November ($207.8B to $213B). However, instead of retreating in the months ahead, it continued surging higher to $216B and then $220B in December and January.
It seems unlikely the Deficit will be rescued by a data discrepancy in December. $100B Goods Deficit looks like a real possibility next month.
Looking at Trailing Twelve Month:
- The Total Net Deficit of $851B is a new all-time record
- This beats the record last month of $838B by $13B
- YoY the Net Deficit is up 29.7% from $656B
- The TTM Services Surplus has fallen from $284B in 2019 to $250B in 2020 and down again in 2021 to $229B
- YoY the Services Surplus is down 8.2%
Will the MoM growth in the Services Surplus continue? If not, a shrinking Services Surplus will be a greater tailwind to higher deficits in the future. In either case, the surging Goods Deficit will overwhelm any gains on the services side.
Figure: 2 Trade Balance Detail
Zooming out and focusing on the Net numbers shows the longer-term trend and demonstrates why Trade Deficit records will continue unabated. This plot also shows how much larger the Goods deficit is compared to the Services surplus. The Services surplus has been declining since Jan 2018. The recent uptick in the Services Surplus can be seen on the far right. If anything, this looks like a potential data anomaly this month.
Figure: 3 Historical Net Trade Balance
The chart below zooms in on the Services Surplus to show just how quickly it has dropped in recent months. It compares Net Services to Total Exported Services to show relative size. After hovering near 35% since 2013, it sits at 28% in the most recent month. This is being driven by Imported Services rising much faster than Exported Services.
The latest month deviated from this trend with Exported Services increasing 5% ($3.3B) vs 2.3% ($1.2B) in Imported Services. On a TTM basis, Imported Services is up 12.1% vs 5.1% for Exported Services. The coming months will reveal if November changed the 12-month trend or was simply an outlier.
Figure: 4 Historical Services Surplus
To put it all together and remove some of the noise, the next plot below shows the Trailing Twelve Month (TTM) values for each month (i.e., each period represents the summation of the previous 12-months). This latest 12 month period of -$851B for Net Total (black line) is the largest ever, having exceeded the record set last month of -$838B.
Figure: 5 Trailing 12 Months (TTM)
Although the Net Trade Deficits are hitting all-time records in terms of dollars, it can be put in perspective by comparing the value to US GDP. As the chart below shows, the current records are still below the 2006 highs before the Great Financial Crisis.
That being said, the trend has reversed strongly, reaching 3.67% in the latest month.
Figure: 6 TTM vs GDP
Finally, to compare the calendar year with previous calendar years, the plot below shows the Year to Date (YTD) figures for each year through the current month. 2020 can clearly be seen as having bent the trend in a more steeply downward sloping direction (black line).
This chart also clearly illustrates the driver of the new records. Where 2021 Exports are on par with 2018 and 2019, Imports show a big jump in comparison.
Figure: 7 Year to Date
What it means for Gold and Silver
The Trade Deficit matters for gold and silver because it shows how much the US is importing in exchange for US Dollars. A trade deficit means that the difference has to be made up with dollars rather than Goods and Services. Think about trading in a used vehicle for a new one. Because the old car is not as valuable as the new car, the customer must make up the difference with cash. The US exports are not as valuable as the imports coming into the US; thus, the difference is made up by sending dollars abroad to trading partners.
Not only does this demonstrate a weak economy that consumes more than it produces, but it means the supply of dollars around the world continues to grow. With more dollars circulating internationally, it puts downward pressure on the US dollar exchange rate when compared to other currencies. As the dollar loses value in the global economy, it supports the price of commodities measured in dollars, specifically hard currency like gold and silver.
Data Source: https://fred.stlouisfed.org/series/BOPGSTB
Data Updated: Monthly on one month lag
Last Updated: Jan 06, 2022 for Nov 2021