Trade Reports Sometimes Not What They Seem : Statistical Changes Can Mask Realities, Make Interpretation Tough
The government’s trade reports trumpeted a hefty jump in shipments from East Asia last August and September as imports poured into the United States from Japan, Taiwan and Hong Kong.
Was this devastating news for American industry, the sign of a powerful new onslaught for consumers’ affections and dollars?
Hardly. It simply reflected the rush that occurs every year, as merchandise for the Christmas season is unloaded on American docks so it can hit the shelves in markets and malls throughout the country by October and November.
The import surge was just one of the quirks in the trade deficit number--intensely watched by business executives, investors and speculators, but too often poorly understood by all of them. The trade deficit figure can seem to swell abruptly in a single month, raising fears that America is sinking under a tidal wave of foreign goods. Or it may shrink suddenly, providing a boost to the stock market. But either movement can be a false statistical change without any link to the underlying realities of trade patterns.
False Optimism
Traders in stocks and foreign currencies “make a living with split-second decisions, and often they don’t take the time to understand what is happening,” said Dale Larson, senior vice president at Bank of America in San Francisco. Even for a professional economist, he admitted, it may take several hours of study, looking through the figures on particular countries and industries to discover what is really going on.
The uncertainty of numbers was demonstrated earlier this year when Taiwan bought a hefty $600 million worth of gold in this country, a transaction that had the effect of cutting into its big trade surplus with the United States.
Maybe Taiwan decided it “had enough dollars and wanted to convert to a commodity, and gold is a good safe commodity,” speculated a Commerce Department trade expert, speaking privately. “Or maybe Taiwan wanted to reassure U.S. politicians worried about the trade gap. Who can be sure? But, as American policy-makers, what we do not want is a misleading perception that things are getting better.”
Commerce Department officials are very conscious of tricks and quirks that can give a temporary twist to the trade figures. Forget the monthly fluctuations, they say, and concentrate on the overriding trends. Otherwise, you’ll alternate between false euphoria and misleading despair.
In one month, exports may be buoyed by a jump in sales of aircraft, one of the most eagerly sought American products. But it could be a false optimism, portraying the delivery of planes ordered from an American manufacturer years ago under a long-term contract by a single foreign airline. Typically, “Japan Airlines buys a new fleet from Boeing every five or 10 years,” said Undersecretary of Commerce Robert Ortner.
Or the seeming boom in aircraft exports could be linked to the schedules and availability of pilots to ferry the planes across the oceans to their new owners.
Either way, the next month will not show the same big boost in aircraft exports--and that could be taken incorrectly as an indication that the overall trade deficit is getting worse.
Sometimes, an effort to improve the trade number immediately may backfire in the long run.
In 1986, for example, the Japanese bought more than $2 billion worth of gold to use for medals in honor of Emperor Hirohito’s 60th anniversary as ruler. The gold was acquired in Europe, then brought to the United States, and finally shipped to Japan, artificially increasing the U.S. export figure.
And that indeed was the purpose of the shipping odyssey, according to Ortner. Then in 1987, without help from gold sales, the trade gap with Japan worsened, increasing congressional pressures for protectionist legislation.
‘Reverse Imports’
Another trade quirk could result from comments made a month ago by Japan’s minister of international trade and industry. He called together more than 300 chief executives of Japanese companies and urged them to import more foreign products--even if it meant buying more goods from their own overseas operations.
The reason, he made clear, was to help reduce Japan’s stubborn--and politically troubling--trade surplus. But if much of the reduction is the result of so-called “reverse imports” of products made by Japanese-owned operations overseas, then the decrease will be at least partly unnatural.
Temporary blips like the gold sale, spurts like last August’s import surge, and the effects of Japan’s “reverse imports” are confusing and even harmful to understanding.
“It’s not informative to say that exports increased this March--they always do,” Ortner said. Improved weather after the winter season means more production and easier transportation of goods to the ports.
To make the trade figures more meaningful, the Commerce Department has begun adjusting the report to offset the impact of seasonal changes such as the normal March rise in exports.
Farm products, consumer goods, and factory equipment all are shipped abroad in higher numbers every March. Now, the monthly total for that month will be altered so it does not give a false suggestion that exports are booming.
A similar adjustment will be applied to the import side for the spring surge of Japanese automobiles into this country. The Japanese government’s fiscal year ends in March, and this becomes the deadline for shipping cars to the United States under the voluntary quota restraints that have been accepted annually by Japanese auto makers.
New Totem
The adjusted figures should correct some of the false impressions about trade trends that have been generated by the obsessive focus on the monthly number.
When Wall Street and business were focused on inflation and the Federal Reserve Board, the announcement of the monthly money supply figure, known as M-1, could cause the stock market to zoom or plummet.
The monthly trade number is the new totem.
“These days, trade figures are so important as a barometer on how we’re doing,” said William T. Archey, international vice president for the U.S. Chamber of Commerce. People are “becoming much more sophisticated in dealing with the figures,” he said.
Archey gets the report, glances at the overall number, then burrows into the pages of tables and statistics, looking at the breakdown for the United States’ major trading partners. He pays attention to Japan and the newly industrialized nations, fast-growing economic powers such as South Korea and Taiwan. He checks Western Europe--West Germany in particular.
Then he looks at 15 major manufacturing categories, such as computers, telecommunications, scientific instruments, electrical manufacturing equipment, and machine tools. He discounts the worsening impact on the deficit of big shipments of imported oil in the fall, when refineries build up inventories of heating oil for the winter season.
And he is alert to the quirks. “I want to see if there is anything unusual, like big changes in gold shipments,” he said.
Trade Deficit May Dip
Careful analysis of the figures is especially important these days in measuring the true extent of the long-awaited recovery in American exports.
“There is a powerful export trend,” said Stephen Cooney, director of international investment and finance for the National Assn. of Manufacturers. The dollar has fallen far enough to make American goods much more attractive to foreign buyers and has raised the prices of imports for U.S. consumers.
Archey of the Chamber of Commerce shares the optimism that export sales will keep climbing. “American companies got a little scared,” he said. “They have become leaner and meaner, and quality issues have started to take hold.”
The trade deficit, about $170 billion last year, is likely to dip to $140 billion to $145 billion this year, the experts believe. Trade figures are so volatile, Cooney said, that he distrusts any single number, even if it is adjusted for seasonal variations. Experts are “appalled that monthly numbers have this kind of impact on the financial markets.”
He advises would-be analysts to take an average of three months’ results and to calculate the overall deficit they would produce at an annual rate. This should be compared with the previous year’s deficit to get a sense of the trend of trade.
Commerce Department officials agree that several months’ figures produce a much more accurate portrait of the trade situation. However, since Wall Street jumps and twitches with each monthly report, the next of which is due in mid-July, the best Washington could do was make the monthly number somewhat better by smoothing it for seasonal changes.
