The story line from this morning news from the Bureau of Economic Analysis (BEA) is that the trade deficit is up in part because the trade surplus in services is down. That is bad news. But it is a little misleading. The good news is that the U.S.’s trade surplus in intangibles continues to grow.
The biggest gain in intangibles was made in Business Services where exports grew by more than the increases in imports in January. Revenue from Intellectual Property was also a major contribution to the overall rise where exports (payments in) declining by less than the drop in imports (payments out). The surplus in Telecommunications, Computer & Information Services grew as exports grew by more than the increases in imports. Maintenance & Repair Services are slowly recovering from their dramatic decline at the beginning of the pandemic, with exports growing slightly faster than imports. The deficit in Personal, Cultural & Recreational Services improved slightly as exports rose and imports declined. Unfortunately, the trade deficit in Insurance continued to grow as export declined and imports rose slightly. And the trade surplus in Financial Services declined as imports grew more than exports.
The real problem is with the sectors that I call “Tangible Services” which are made up of the BEA trade sectors of Transport, Travel, Construction, and Government Goods & Services. These are sectors primarily involved in physical activities. [See below.] The trade balance in tangible services turned negative in 2022 following a steady decline in the trade surplus through the past decade. Exports grew in fits and starts including drops during the financial collapse of the mid-2000’s and around the COVID-19 pandemic. However, imports have grown at a relentless pace, overtaking exports early last year. The cause of the overall balance decline is the large and increasing deficit in transport services and a smaller, but still significant, deficit in travel.
Note: Tangible activities are primarily physical activities (involving atoms); intangibles are primarily information/analytical activities (involving bits). Production of goods is almost exclusively a tangible activity. Services can be divided into tangible and intangible activities. Tangible services involve physical activities such as cutting hair, ringing up a sale at a cash register, cooking and serving a meal, and transporting someone or something. Designing a poster, negotiating a deal, writing an article, and approving a loan are examples of intangible services. For more, see my earlier postings.
The Intangible Economy 