The US trade deficit improved slightly in October, according to this morning’s trade data from BEA. The deficit shrank slightly to $32.9 billion, down from the revised September deficit of $35.7 billion. Almost all of the improvement was due to a $2.6 billion drop in petroleum imports. The non-petroleum balance improved only slightly as both exports and imports grew. The good news is that non-petroleum exports grew faster than imports and have risen over the past few months. The bad news (for the trade balance) is that non-petroleum imports have surged a bit over the past three months. That is a sign of an economic recovery – but not a path to a sustainable trade balance.
Our intangibles trade surplus also improved slightly as exports of both business services and royalties rose faster than imports. The October trade surplus in intangible was almost $11.5 billion. Contrary to previous reports, the intangible trade balance has improved steadily in the past 6 months — based on revised data.
That revision is the big news in this release regarding intangibles. Both imports and exports of business services and royalties were significantly revised upwards. In some months the revision was over half a billion dollars and changed the data by over 8%. These revisions change the story from stagnation to upward growth. As I’ve state before, while I appreciate BEA’s efforts to improve the data, I remain concerned about these revisions. We really need a better way of incorporating the data into the monthly figures, rather than revising the numbers a half a year later.
Our deficit in Advanced Technology Products also improved slightly in October, dropping to around $5.6 billion. Increased exports in aerospace and biotechnology were enough to offset increased imports of life sciences, information and communications technologies, and optoelectronics. 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.
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.