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Surge in Services Imported Sends Trade Deficit to New Record


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August 2021 saw a total trade deficit of -$73.25B which is up 4.2% over the July trade deficit of -$70.3B. This number barely edged out the previous record in June of -$73.23B.

The new record was driven primarily by Services. The Services Surplus took another big fall down -7.7% to $16.2B, the smallest Services Surplus since Dec 2011. The Services Surplus in June was $20.03B.

Imported Goods came in at -$239.11 just below the June value of -$239.17. A larger increase in Goods Exported brought the Net Goods value down to -$89.41B vs June’s -$93.25B. Unfortunately, the increase in Goods Exported could not make up for the net change in Imported Services leading to the new Trade Deficit record. July had backed off the record by 3B.

Figure: 1 Monthly Plot Detail

The table below provides a deeper look into the numbers. Some key takeaways:

  • The MoM change was driven by exports increasing only $1B vs imports increasing $4B
    • Imported Services increased $1.3B where Exported Services only increased $100M
    • Imported Goods increased $2.7B where Exported Goods only increased $1.1B
    • The trend in a falling Services Surplus has been discussed before

Looking at Trailing Twelve Month:

  • The Total Net deficit has surged 37.6% from $594B in Aug 2020 to $817B. This represents a massive 37.6% increase in the TTM trade deficit.
  • Even looking pre-Covid, the TTM deficit is up 34.1% from the $609B in Aug 2019
    • The Total Net surge is due to Imported Goods increasing by $140B while Exported Services has decreased by $15B when comparing 2021 to 2019
    • Interestingly Imported Services fell by $130B causing Total Imported to only increase $52B
    • Net Services has seen a big decline of 18% falling over $50B from $284B to $233B since 2019

The surging trade deficit is being attributed to the US recovering faster than every other nation and thus having more money to demand Imported Goods. The current theory states that as the rest of the world also recovers, the gap will close as US Exported Goods rebounds. Unfortunately, the most recent month makes this narrative harder to believe as the US continues to increase Imports far faster than Exports.

The US has maintained a surplus in Services for decades, even increasing the Net Services figure since 2008. The trend has changed since 2018 (see line chart below). If this does not reverse it will provide a stronger tailwind to increasing Total Net Trade Deficits in the months and years ahead.

To really demonstrate the effect, consider that in Dec 2019 Net Goods Deficit of $69.2B was offset by a Net Services Surplus of $23.8B. In the most recent month, the Goods Deficit is $89.4B vs only $16.2B offset in Net Services Surplus. The ratio has doubled from 2.8 to 5.5!

Figure: 2 Trade Balance Detail

Historical Perspective

Zooming out and focusing on the Net numbers shows the longer-term trend. This plot demonstrates just how much larger the Goods deficit is compared to the Services surplus. As mentioned above, the Services surplus has been declining since Jan 2018.

Figure: 3 Historical Net Trade Balance

The chart below zooms in on the Services Surplus to show just how quickly it has dropped in recent months. It compares Net Services to Total Exported Services to show relative size. After hovering near 35% since 2013, it has crashed down to 25% in the most recent month.

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). This latest 12 month period of -$817B is the largest ever, having exceeded the record set in July of $807B.

Figure: 5 Trailing 12 Months (TTM)

Although the Net Trade Deficits are hitting all-time records in terms of dollars, 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 trend has reversed strongly, reaching 3.6% in the latest month.

Figure: 6 TTM vs GDP

Finally, to compare the calendar year with previous calendar years, the plot below shows the Year to Date (YTD) figures for each year through the current month. 2021 can clearly be seen as having bent the trend in a more steeply downward sloping direction.

Figure: 7 Year to Date

What it means for Gold and Silver

The Trade Deficit matters for gold and silver because it shows how much the US is importing in exchange for US Dollars. A trade deficit means that the difference has to be made up with dollars rather than Goods and Services. Think about trading in a used vehicle for a new one. Because the old car is not as valuable as the new car, the customer must make up the difference with cash. The US exports are not as valuable as the imports coming into the US, thus the difference is made up by sending dollars abroad to trading partners.

Not only does this demonstrate a weak economy that consumes more than it produces, but it means the supply of dollars around the world continues to grow. With more dollars circulating internationally, it puts downward pressure on the US dollar exchange rate when compared to other currencies. As the dollar loses value in the global economy, it supports the price of commodities measured in dollars, specifically hard currency like gold and silver.

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

Data Updated: Monthly on one month lag

Last Updated: Oct 05, 2021, for Aug 2021

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