Earlier this year I posted an analysis of how the then-new pandemic economic shock was affecting our intangibles trade surplus. Back the, IP trade was affected but other sectors only suffers slightly. With all the ups and downs of the past 6 months, it is time for an update based on BEA’s latest trade data for September.
Overall, the intangibles trade surplus has rebounded somewhat since hitting bottom in April. While not yet back to January’s level, it is at least closer to the pre-pandemic trendline. This is being driven by Business Services and Financial Services which dropped in the beginning of the pandemic and are beginning to rebound slightly. Maintenance & Repair Services and net revenues from Intellectual Property Products also took a hit at the beginning of the pandemic but have flatten rather than rebounding. Telecommunications, Computer & Information Services remained flat for the past year or so. Insurance Services and Personal, Cultural & Recreational Services continued their steady decline.
A closer look at specific industries reveals a more nuanced and worrisome picture.
First, there is a new sector added to this analysis: Personal, Cultural, and Recreational Services (see more detailed discussion below on BEA’s revisions to the data). Two points to make here. One, the balance of trade in this category has seen a 5-year steady and dramatic decline. Two, trend was not substantially interrupted by the pandemic. The pandemic caused a slightly turnaround as exports saw a blip in the summer rebound. But exports have flattened recently and imports have continued a steady rise.
The trade surplus in Maintenance and Repair services took a nose dive at the beginning of the pandemic and has not yet begun to recover as exports remain stuck at a lower level.
Our surplus in Intellectual Property also seems stuck at a lower level as payments out (imports) grew at about the same as revenues received (exports). As I noted back in December, the trade surplus in IP products has been declining for almost a decade as revenues (export) have remain essentially flat while payments (imports) have grown.
The pandemic seems to have had little impact on our trade deficit in Insurance Services. But that is not good news as the trendline continues to go straight down with imports climbing and exports declining slightly over the past few years.
The picture for Financial Services is somewhat better. Exports are rising while imports are flat.
The case is similar for Business Services with the surplus rebounding as exports grew faster than imports.
For Telecommunications, Computer, and Information Services, the pandemic had almost no net impact on the trade surplus as exports and imports first dropped and recovered at the same amount. This flat level, however, interrupted a 5-year trend in growth in the trade surplus in this sector.
NOTE: As part of its annual revision, BEA has updated the categories it uses to collect services trade data. As mentioned above, this includes creating a new category called Personal, Cultural, and Recreational Services. This category consists of the following subcategories (some of which were previously included in the Intellectual Property and Business Services categories:
- Audiovisual services, which covers production of audiovisual content, end-user rights to use audiovisual content, and outright sales and purchases of audiovisual originals
- Artistic-related services, which includes the services provided by performing artists, authors, composers, and other visual artists; set, costume, and lighting design; presentation and promotion of performing arts and other live entertainment events; and fees to artists and athletes for performances, sporting events, and similar events
- Other personal, cultural, and recreational services, which includes services such as education services delivered online, remotely provided telemedicine services, and services associated with museum and other cultural, sporting gambling, and recreational activities, except those acquired by customers traveling outside their country of residence
BEA also created a new category called Construction Services separating the data out from the existing Business Services category. Since this category seems to cover physical construction activities, I have decided not to include it as an intangible creating activity, similar to how we treat the Travel and Transportation categories.
For more information, see the BEA article “Preview of the 2020 Annual Update of the International Economic Accounts.”