Yearly Trade Deficit Approaches $1T

The May trade deficit came in at -$86B. This was another MoM decline but the monthly deficit is still significantly larger than it was at any point before 2022 as shown below. One of the biggest concerns is the Services Surplus contracting by 8.1%.

Figure: 1 Monthly Plot Detail

The table below provides detail.

Monthly Trade Deficit

• • Exports grew in both Goods (+1.7%) and Services (+0.1%)
  • Imports also saw both categories grow
    • • Services increased 3.2% MoM and 32% YoY!
  • On a Net basis, both categories fell
    • • Net Goods Deficit fell $2.8B with Net Services Surplus falling $1.6B or 8.1%

Looking at Trailing Twelve Month:

• • The Total Net Deficit reached a new record of $971B
    • • This broke the $952B record last month by almost $19B. $1T could happen in the next 2 months.
      • YoY, the Net Deficit is up 30%
      • Compared to April 2020, the TTM Deficit is up 76.2%
  • The TTM Services Surplus has fallen 9.9% from $259B to $233B over the last year
    • • Over that time, the Goods Deficit has increased 19.8% from $1T to $1.2T

The falling Services Surplus is a significant concern, especially because it was driven primarily by Increased Imports.

Figure: 2 Trade Balance Detail

Historical Perspective

Zooming out and focusing on the Net numbers shows the longer-term trend and magnitude of the current move. The spike down on the far-right side shows how quickly the deficit has exploded. This plot also shows how much larger the Goods Deficit is compared to the Services Surplus. The Deficit spiked back up but still sits well below where it was just a few months ago.

Figure: 3 Historical Net Trade Balance

The chart below zooms in on the Services Surplus to show the wild ride it has been on in recent months. It compares Net Services to Total Exported Services to show relative size. After hovering near 35% since 2013, it dropped to 26% in Aug 2021, recovered to 28.8%, but fell back to a new low of 25.3%.

Figure: 4 Historical Services Surplus

To put it all together and remove some of the noise, the next plot below shows the Trailing Twelve Month (TTM) values for each month (i.e., each period represents the summation of the previous 12 months).

Figure: 5 Trailing 12 Months (TTM)

Although the Net Trade Deficits are hitting all-time records in dollar terms, it can be put in perspective by comparing the value to US GDP. As the chart below shows, the current records are still below the 2006 highs before the Great Financial Crisis.

That being said, the current 3.98% is the highest since April of 2009 and up from 2.53% in March 2020.

Figure: 6 TTM vs GDP

The chart below shows the YTD values. 2022 is well above prior years by a significant margin. Total 2022 Imported Goods is already larger than the combined Imported Services and Imported Goods from 2021.

Figure: 7 Year to Date

What it means for Gold and Silver

The US continues to run massive deficits with its trading partners. How long will countries continue to accept paper dollars for physical goods? The Chinese have been dumping Treasuries for some time and are about to go below $1T in total holdings. When the Fed pivots, the world will increase the speed at which it divests itself of the US Dollar. Those dollars will then come flooding back to the US. This will exacerbate the inflation problem for the Fed. Gold and silver offer the best protection in such an environment.

Data Source: https://fred.stlouisfed.org/series/BOPGSTB

Data Updated: Monthly on one-month lag

Last Updated: Jul 07, 2022, for May 2022

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