Exports have been a solid contributor to US GDP growth for the last few years, while consumption and residential investment have been more restrained. Recently, with consumption firming and likely to improve further from the tail-wind of lower oil prices, and exports faltering, it appears the drivers of the US economy are trading places. It appears that we should expect trade to subtract from growth in the coming quarters. Driving the weakness in trade is weakness in goods exports. In the chart below we show the year over year change in goods and services exports. Goods exports are down almost 4%.

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We calculate an export diffusion index measuring the net number of countries in which US exports are increasing/decreasing. Over the last three months, the index has plunged to -33.

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Over the last years, the index has plunged to -15, breaking out of the 2011-2014 range and hitting the lowest level since November 2009.

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The three month moving average of the ISM new export index has fallen from 57.2 to 50 since December 2013 pacing the drop in real exports.

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With the export index continuing to drop recently, it is probably fair to expect trade to mildly subtract from GDP growth in the coming quarters.

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Likely at the root of the US export weakness is the strong US Dollar. The recent surge in the USD highlights the risk that exports could experience a material drop in the coming quarters.

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(c) GaveKal

http://gavekal.blogspot.com

 

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