1. Economic Indicators: Introduction
  2. Economic Indicators: Beige Book
  3. Economic Indicators: Business Outlook Survey
  4. Economic Indicators: Consumer Confidence Index (CCI)
  5. Economic Indicators: Consumer Credit Report
  6. Economic Indicators: Consumer Price Index (CPI)
  7. Economic Indicators: Durable Goods Report
  8. Economic Indicators: Employee Cost Index (ECI)
  9. Economic Indicators: Employee Situation Report
  10. Economic Indicators: Existing Home Sales
  11. Economic Indicators: Factory Orders Report
  12. Economic Indicators: Gross Domestic Product (GDP)
  13. Economic Indicators: Housing Starts
  14. Economic Indicators: Industrial Production
  15. Economic Indicators: Jobless Claims Report
  16. Economic Indicators: Money Supply
  17. Economic Indicators: Mutual Fund Flows
  18. Economic Indicators: Non-Manufacturing Report
  19. Economic Indicators: Personal Income and Outlays
  20. Economic Indicators: Producer Price Index (PPI)
  21. Economic Indicators: Productivity Report
  22. Economic Indicators: Purchasing Managers Index (PMI)
  23. Economic Indicators: Retail Sales Report
  24. Economic Indicators: Trade Balance Report
  25. Economic Indicators: Wholesale Trade Report

Each month the Bureau of Economic Analysis releases their U.S. International Trade in Goods and Services Report. A key statistic from the report is the balance of trade between the U.S. and the rest of the world. The balance of trade measures the value of a country’s exports of goods and service against what it imports from other countries.

The indicator within the Trade Balance Report that is most well-known is the nominal trade deficit, which represents the current dollar value of U.S. exports minus the current dollar value of U.S. imports. The report also covers trade balances for services, such as financial and informational management, as well as for physical goods.

A country’s trade balance is the most important component of their current account, the measurement of their net income on foreign trade.

 

Why the Trade Balance Report matters

The balance of trade can help economists and investors determine the relative strength of the economy of one country versus another. A country with a large trade deficit is borrowing money to purchase goods and services from other trading partners.

The U.S. has been running a trade deficit for more than 20 years (and a current account deficit for some time as well), set against the backdrop of a long-term U.S. economic expansion. As a nation, the U.S. imports more than it exports. Because the U.S. economy has been expanding for so long, most other nations have not been able to keep up, meaning that U.S. demand for things as a nation is higher than other nations' demand for U.S. goods. What causes worry among some is the long-term trend of more money flowing out than coming back in.

When interest rates are low, U.S. debt is not as attractive on a risk-adjusted basis, creating concern that our investments will no longer attract foreign ownership, causing the value of the dollar to drop and leading to decreased world purchasing power.

The current account as a percentage of total gross domestic product (GDP) is an important metric because it shows how large the current account number is in relation to overall output in the economy.

The Trade Balances Report can move the markets upon release if the data shows a marked change from the prior period. Compared to other indicators, this report is relatively hard to estimate outside of petroleum, so some surprise factors can occur from time to time.

 

Strengths of the Trade Balances Report:

  • Monthly releases are concise and give results in nominal (dollar) terms
  • Highlights which countries make up the largest percentages of the balance, as well as rates of change
  • Results shown against the backdrop of the past six months
  • Trade represents approximately 25% of total economic activity and is a large component of GDP

 

Weaknesses of the Trade Balances Report:

  • Monthly report doesn't show a complete transaction reconciliation (quarterly release does)
  • Inconclusive as to the long-term effects of the stock market and economy of a trade deficit or surplus
  • Volatile due to oil prices and seasonality

Economic Indicators: Wholesale Trade Report
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