While U.S. goods imports exceed goods exports, the latter have been growing faster this year. That growth has been led by producer-oriented categories such as petroleum products and aircraft parts, rather than products more familiar to consumers.

In Focus - Automotives Drive Exports

Some common themes in recent U.S. data have been: growth is good, not stellar; levels are not quite as strong as they were in peak pandemic; and even if aggregate numbers look pretty stable, there can be dramatic variation in the subcategories. That has characterized U.S. consumption, retail sales, and all of it is true for real goods exports.

Before delving into the details, the trade headlines for July: after adjusting for inflation and seasonality, July imports were 0.5% above June and exports were up 1.1%. Comparing the first seven months of 2023 with 2022, imports were 4.1% higher and exports 9.9%. The use of real–inflation adjusted–data and the exclusion of services trade numbers make a big difference – the nominal data for goods and services showed year-to-date imports down 4.3% and exports up only 1.6%.

This week’s chart focuses on the performance of real goods exports. The July increase marked the third monthly uptick in a row, though total exports are still below the stronger months in January and March of this year. They are represented by the dark, thicker solid line in the middle of the graph.

The chart also shows the trends in the five large categories that make up the bulk total exports. It normalizes their performance to show percentage change from January 2022. While that allows for an easy comparison, it is worth noting that there are big size differences between the categories. For July exports, Industrial Supplies ($45.9bn) narrowly edged out Capital Goods ($45.2bn); real values are in chained 2017 dollars. The Industrial Supplies category is where oil and gas reside, with prominent subcategories like crude oil, “other petroleum products,” natural gas, fuel oil, and plastic materials. Major Capital Goods categories include civilian aircraft engines, electric apparatus, “other industrial machinery,” and semiconductors.

One reason for widespread pessimism about exports in the U.S. is that these are not the product categories that the average consumer tracks. Those are probably–and not surprisingly–in the Consumer Goods category: pharmaceutical preparations, cell phones and other household goods, and gem diamonds, to list a few. But that category was just $19.4bn in July. Automotive came in at $15.4bn and Foods, Feeds & Beverages at $8.9bn.

The Automotive numbers also serve to illustrate the prominence of intra-industry trade. While it can be tempting to think that one country will have a comparative advantage in a good and export it (pace David Ricardo), the U.S. also imported $36.7bn of Automotive vehicles and parts in July. Looking at year-to-date numbers, Automotive was the fastest-growing import category (up 11.1% over 2022) and the fastest-growing export category (up 20.4%). Intra-industry trade generally reflects significant economies of scale and the accompanying gains to specialization.

In the graph, Food comes off as the clear laggard – the only category that is down YTD in real terms (-0.3%). Without exactly answering why, we can note that the top export markets for U.S. agriculture, in order, are: China, Canada, Mexico, Japan and the European Union.

What does the future hold for U.S. exports? Check out the Flexport Trade Activity Forecast, with a new set of numbers on Monday, September 18th.

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Latest Flexport Metrics & Research

This week we look into trends in U.S. consumer credit card debt and ask (again) whether there might be problems on the horizon.

Watch for Flexport Research’s new European Trade Activity Forecast, coming in October!

Economic Developments

Euro area real GDP grew 0.1% quarter-on-quarter in Q2, revised down from an initial estimate of 0.3%, the same rate as Q1. Household final consumption expenditure was flat, while government consumption increased by 0.2%. A 0.3% rise in gross fixed capital formation was offset by a decrease of 0.7% in net exports.

Japan’s real GDP grew 1.2% in Q2, revised down from its initial estimated rate of 1.5%. An upward revision to a 2.0% increase in private residential investment was offset by household consumption being revised down to 0.7%.

South Korean real GDP expanded 0.6% in Q2, accelerating from 0.3% growth in Q1. Manufacturing production rose 2.5%, driven mainly by computer, electronic and optical products, while construction fell by 3.9%. Expenditures shrank, with private consumption falling by 0.1% and construction investment declining 0.8%.

U.S. productivity increased 3.5% in Q2, the first increase in six quarters. The rise was attributed to growth of 1.9% in output and a decrease of 1.5% in hours worked, marking the first decline in the latter since Q2 in 2020. Unit labor costs increased 2.2%, with a 5.7% rise in hourly compensation. Manufacturing sector productivity rose 2.9%.

Euro area retail sales fell 0.2% in July, after two consecutive months of growth. The decrease was driven by a 1.2% decline in auto fuels, which was offset by a 3.8% increase in mail and internet orders.

German headline inflation ticked down to an annual rate of 6.1% in August, back to May’s reading, which was the lowest since March 2022. High food prices continue to drive inflation, but increases slowed to 9.0%, down from 11.0% in July. Core inflation, which excludes energy and food, stayed the same at 5.5% from the previous month.

Last week’s trade releases were again mixed, but with figures out of North America still encouraging.

• China’s exports rose 1.2% from the previous month in August but were still down 8.8% year-on-year, the fourth consecutive month they declined by that measure. Vehicle exports are up more than 90% year-to-date over last year, but almost other major categories have declined, including ‘hi-tech products,’ which are 14.6% below last year. Exports to the U.S. are 15% below 2022 through the first eight months of the year.

• Germany’s exports in July decreased 0.9% month-on-month and 1.0% year-on-year. Exports had increased in each of the three months prior. Shipments to the US were up 5.2% over June and to the other Euro area countries by 1.7%. Exports to the UK dropped 3.5%, however. Year-to-date exports were 2.9% higher than 2022.

• Mexico auto exports increased year-on-year for the ninth straight month in August, rising 15.7% to more than 287,000 vehicles, the most since March 2020.

• Australian goods exports fell 2.0% in July, driven by a 12.8% decrease in exports to China, its largest trading partner.

• Canadian exports grew 0.7% month-on-month in July, after two straight months of declines. An increase of 23.4% in aircraft exports was offset by a 8.6% fall in mineral products. Exports to the U.S., its largest trading partner, grew 1.5%, but exports to the rest of the world fell 2%.

Political Developments

The Leaders’ Declaration from last weekend’s G20 Summit in New Delhi focused in large part on issues related sustainability and “green development.” On trade, the leaders committed to a multilateral trading system with “the WTO at its core” and to “having a fully and well-functioning dispute settlement system accessible to all members by 2024.”

At the 43rd ASEAN Summit, the managing director of the IMF urged regional leaders to invest in international cooperation and “to serve as an example and advocate for (its) benefits.” She noted that economic fragmentation would have “profound effects” on economies like ASEAN.

The trade finance gap – or the difference between demand for trade finance and supply – was estimated to be $2.5 trillion in 2022, according to the Asian Development Bank’s biennial report on the topic. The gap was $800 billion wider than in 2020. Credit tightening due to rising interest rates and general economic certainty were cited by lenders as the top two barriers to providing more funding for trade.

Disclaimer: The contents of this report are made available for informational purposes only and should not be relied upon for any legal, business, or financial decisions. Flexport does not guarantee, represent, or warrant any of the contents of this report because they are based on our current beliefs, expectations, and assumptions, about which there can be no assurance due to various anticipated and unanticipated events that may occur. This report has been prepared to the best of our knowledge and research; however, the information presented herein may not reflect the most current regulatory or industry developments. Neither Flexport nor its advisors or affiliates shall be liable for any losses that arise in any way due to the reliance on the contents contained in this report.