Some of you may remember that last cycle I sometimes posted charts showing real exports and imports versus trend to show how trade was doing. It is now over two years since imports and exports bottomed so I thought It was time to update those charts for this cycle. But as I started looking at the data I made a very interesting discovery.
Real petroleum exports — both crude and refined product — are exploding. After being flat for years, petroleum exports have been growing at some 33% to 50% rates since 2006. They have leaped from about $2 B (2005 $) to over $5 B (2005 $). This is a significant development that few people have recognized.
To but this in perspective, petroleum exports had been a relative small factor in trade and the economy for years. For example from 1994 to 2005 petroleum exports had fallen from a sum equal to about 10% of petroleum imports to under 5%. But they now amount to almost a third of petroleum imports.
Consequently, when you look at US dependence on foreign oil it makes a big difference in the analysis if you just look at the data on gross imports or if you adjust the data to look at net petroleum imports — imports less exports. Gross imports show that since the last cyclical peak the combination of falling demand and even expanded domestic production over the last couple of years had produced a significant drop in real petroleum imports. I’ve long used oil imports as a measure of the US marginal demand for oil. This approach shows that real petroleum imports have fallen to their level of about ten years sago — a rather import ant development. But if you look at the net data, real petroleum imports are back to levels of 20 years ago. This shows that the US is making much more significant progress in reducing its dependence on foreign oil than is generally recognized.
This also has a significant impact on the US balance of trade. In recent months the real trade balance has appeared to be bottoming and this has been starting to get economists and analysts optimistic that trade could make a significant positive contribution to growth in coming quarters.
But the improvement has almost all stemmed from petroleum. The real trade balance excluding petroleum is still deteriorating, although maybe not as severely as it had been earlier in the cycle.
Moreover, if you look at real non-petroleum exports they appear to be rolling over. When I tried to do a trend analysis neither a linear or an exponential equation generated a good fit. I had to resort to a polynomial equation to get a good fit. But real non-petroleum exports shows significantly worse prospects for trade adding to growth in coming quarters that the consensus expects.