Trade Deficit Analysis: May 2021

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by Peter Schiff, Schiff Gold:

The US trade balance shows the deficit and surplus of US trade for imports and exports. A deficit occurs when imports are greater than exports. When the trade balance is in deficit, it accounts for one of the two components of the twin deficits. The fiscal deficit accounts for the other component and will be reviewed in a later article.

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TTM = Trailing Twelve Months

Understanding the Trends

May 2021 saw a total trade deficit of -71.2B. It was up 3.14% over April but fell just shy of the record -75B trade deficit from March 2021. The plot below shows imports, exports, and net figures (lines) over the last 36 months. The impact of the COVID lockdowns can be seen in the dip in early 2020. The gross numbers are still below pre-pandemic levels, but the net numbers are hitting new all-time records.

Figure: 1 Monthly Plot Detail

Zooming out and focusing on the net numbers only shows the longer-term trend. This plot demonstrates just how much larger the goods deficit is compared to the services surplus. One item to note is that the services surplus has been declining since Jan 2018.

Figure: 2 Historical Net Trade Balance

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 -787B is the largest ever, having just eclipsed the old record from September 2006 of -779B.

Figure: 3 Trailing 12 Months (TTM)

Although the net dollar deficits are hitting all-time records (March 2021 being the largest ever), 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.

Figure: 4 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.

Figure: 5 Year to Date

Digging into the numbers

Summary

Figure: 6 Trade Balance Summary

The latest month saw a total trade deficit of -71.2B which is 3.14% larger than April 2021 and nearly 30% larger than May 2020. May 2021 did not exceed the record -75B trade deficit from March 2021, but is the second-largest trade deficit in US history. On a TTM basis, the last 12-month period produced the largest dollar amount trade deficit of -787B representing a 38% increase compared to the TTM period ending May 2020. Relative to GDP, the -787B represents 3.5% of GDP. This value does not exceed the TTM trade deficits from the early 2000s that ranged from 4% – 5.5% of GDP (see GDP plot above).

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