Some interesting economic news this morning. July’s trade deficit dropped unexpectedly to $40.5 billion from $40.8 billion in June (revised), according to data released by the BEA. [Note: June’s deficit had been originally set at $41.5 billion – see discussion below.] Economists had been expecting an increase to $42.4 billion. Exports were up by $1.8 billion while imports climbed by only $1.6 billion. As was the case last month, our deficit in both petroleum and non-petroleum goods improved (see last chart below).
The surplus in pure intangibles also improved in July, although only very slightly. The surplus grew by $32 million to $13.9 billion as exports rose faster than imports. The improvement was due in part to increased revenues from the use of intellectual property by foreign sources (exports) growing while charges for the use of intellectual property paid out to foreign sources (imports) declined. Exports of financial services grew while imports rose only slightly. Business services exports also rose but imports of those services grew even faster resulting in a lower surplus in this category. In telecommunications, computer, and information services, exports fell and imports rose leaving us with a slightly higher trade deficit in this area. Both imports and exports of insurance services dropped with a slight improvement in this deficit.
Our Advanced Technology deficit also improved in July, dropping to $6.9 billion from $7.5 billion in May. Interestingly, aerospace technology exports dropped, which would have normally increased the overall deficit. But imports of information and communications technology dropped slightly more. A large decline in flexible manufacturing imports led to the overall improvement.
Advanced Technology goods also represent trade in intangibles. These goods are competitive because their value is based on knowledge and other intangibles. While not a perfect measure, Advanced Technology goods serve as an approximation of our trade in embedded intangibles. Adding the pure and embedded intangibles shows an overall surplus of approximately $7.0 billion in July, up from $6.4 billion in June.
As noted above, the June data was revised by almost $1 billion. This change was due to an upward revision of exports of services and intangibles of $0.4 billion and a downward revision of imports of $0.5 billion. Exports of government goods and services and business services and revenues for the use of intellectual property (exports) were revised upward. telecommunications, computer, and information services exports revised downward. Imports of financial services and business services and charges for the use of intellectual property (imports) were revised downward. These revisions remind us of how tenuous our measurements are of intangibles and the need to continue to improve both our data collection and measurement frameworks in this new intangible economy.
Note: I am now reporting the trade data using the new BEA classifications for services trade, which breaks services into more categories. In the past, the intangible trade data was the sum of Royalties and License Fees and Other Private Services. Under the new classification system, intangibles trade data is the sum of the following items: maintenance and repair services n.i.e. (not included elsewhere); insurance services; financial services; charges for the use of intellectual property n.i.e.; telecommunications, computer, and information services; other business services.
Charges for the use of intellectual property n.i.e. is simply a renaming of Royalties and License Fees. This includes 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.
Maintenance and repair services n.i.e., financial services, and insurance services, were previously included in Other Private Services. Telecommunications, computer, and information services is a combination of those two items (telecommunications and computer & information services) that were also previously included in Other Private Services. Three categories previously in Other Private Services — education-related and health-related travel and the expenditures on goods and services by border, seasonal, and other short-term workers — were removed and reclassified to travel. The new category of other business services is a continuation of the older category Other Private Services with those components removed.
Thus, other business services includes categories such as advertising services; research, development, and testing services; management, consulting, and public relations services; legal services; construction, engineering, architectural, and mining services; and industrial engineering services. It also includes personal, cultural, and recreational services which includes fees related to the production of motion pictures, radio and television programs, and musical recordings; payments or receipts for renting audiovisual and related products, downloaded recordings and manuscripts; telemedicine; online education; and receipts or payments for cultural, sporting, and performing arts activities.
For more information on the changes, see the March 2014 Survey of Current Business article, “The Comprehensive Restructuring of the International Economic Accounts: Changes in Definitions, Classifications, and Presentations.”