September trade in intangibles

This morning’s BEA trade data shows a slight decline in the overall trade deficit in September — down $300 million to $56.5 billion from $56.8 billion in August. That decline is being attributed to the falling dollar. And, as the New York Times reports “that was the narrowest trade imbalance since May 2005 and took economists by surprise. They had been forecasting the deficit would rise.” According to the Wall Street Journal, “The U.S. trade gap unexpectedly narrowed in September, despite record prices for imported crude, as heavy foreign demand for American-made food products and industrial supplies helped export growth outpace imports.”
The intangible trade balance however worsened slightly, reversing last month’s improvement. Our surplus in intangibles dropped by $44 million compared to a $40 million improvement in August. The September surplus was $10.14 billion. Both royalty payments (imports) and receipts (exports) grew by a small amount, as did both imports of business services. But exports of business services dropped by $30 million.
So, basically a wash over the last two months. For the year (October 2006 to September 2007 compared with October 2005 to September 2006), our surplus has grown by $17 billion. Slow but measurable progress.
The deficit in Advanced Technology Products also worsened slightly. The September deficit grew to $5.2 billion compared to $4.7 billion in August. The balances in life sciences and electronics improved while he balances in aerospace, biotechnology and information and communications technology (ICT) worsened. Our biggest deficit remains in ICT (a deficit of almost $9.3 billion) while the biggest surpluses are in aerospace (a surplus of $4.4 billion) and electronics ($2 billion). The last monthly surplus in Advanced Technology Products was in June 2002 and the last sustained series of monthly surpluses were in the first half of 2001.

Intangibles trade-Sept07.gif

Note: we define trade in intangibles as the sum of “royalties and license fees” and “other private services”. The BEA/Census Bureau definitions of those categories are as follows:

Royalties and License Fees – Transactions with foreign residents involving intangible assets and proprietary rights, such as the use of patents, techniques, processes, formulas, designs, know-how, trademarks, copyrights, franchises, and manufacturing rights. The term “royalties” generally refers to payments for the utilization of copyrights or trademarks, and the term “license fees” generally refers to payments for the use of patents or industrial processes.

Other Private Services – Transactions with affiliated foreigners, for which no identification by type is available, and of transactions with unaffiliated foreigners. (The term “affiliated” refers to a direct investment relationship, which exists when a U.S. person has ownership or control, directly or indirectly, of 10 percent or more of a foreign business enterprise’s voting securities or the equivalent, or when a foreign person has a similar interest in a U.S. enterprise.) Transactions with unaffiliated foreigners consist of education services; financial services (includes commissions and other transactions fees associated with the purchase and sale of securities and noninterest income of banks, and excludes investment income); insurance services; telecommunications services (includes transmission services and value-added services); and business, professional, and technical services. Included in the last group are advertising services; computer and data processing services; database and other information services; research, development, and testing services; management, consulting, and public relations services; legal services; construction, engineering, architectural, and mining services; industrial engineering services; installation, maintenance, and repair of equipment; and other services, including medical services and film and tape rentals.

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