Friday, April 10, 2009
The trade report yesterday was an odd relief. The story is: the U.S. economy is seriously weak (imports plummeted), but key trading partners may be emerging slowly from the depths (exports grew). However, like all things high frequency, the growth in exports may or may not form a trend. Nevertheless, this is good news; the improved trade balance increases the expected level of Q1 real GDP.
Regarding the trade report as a whole, please read the following: Calculated Risk for a summary of the report, the NY Times for the positives and negatives of the report, and EconomPic for pretty illustrations.
What has not been widely reported was the 8.8% February surge in real auto exports. Consistent with the wholesaler report earlier this week, auto inventories are finally moving out the door, and new production may be (somewhere) on the horizon.
The chart illustrates the merchant wholesaler automotive inventories reported this week by the Census Bureau in levels and annual growth since 1995. In February, nominal auto inventories dropped 7.9% over the month, its biggest monthly decline since 1992, which dragged the annual growth rate down to -4.5%.
Auto production has come to a standstill; and since firms are drawing on inventories, supply is now short of demand. Therefore, for any positive level of demand, auto production will eventually have to resume. This report suggests that the time may be sooner rather than later. The report also suggests that the story on auto exports is inventory sales.
The chart illustrates nominal and real auto exports in levels and annual growth since 2006. In February, nominal auto exports (includes vehicles, parts, and engines) grew 8.5%, its first monthly gain since July 2008. As the merchant wholesaler report suggests, the growth in auto exports is not a tale of new production, rather one of falling inventories.
If this trend persists in autos, inventories are likely to start growing sometime sooner than previously expected: good news for GDP. The final piece of the inventory story will be told next week when the Census Bureau reports total business inventories, including retail.