My Two Cents - "Fudge Factor in Trade Data?"

12/10/2010

For many years now this column has been periodically dedicated to the analysis of economic reports, and the exposure of ‘fudging’ that takes place in most macroeconomic data series. Immediately upon looking at this morning’s trade data it seemed that, once again, something was amiss. It probably jumped out at me because I had just finished a crude oil analysis report for December’s Centsible Investor and the information was still fresh in my mind. However, I am quite sure that I am not the only one who noticed this.

In Exhibit 17 of this morning’s Foreign Trade Report, found on the Census Bureau’s website, the report claimed that the United States imported 9.656 million barrels per day (mbpd) in September of this year. The report goes on to assert that October’s level was 8.209 mbpd. The crude in question sold for an average cost of $72.36, and $74.18 per barrel in September and October respectively. This accounts for a $2.1 Billion decrease in our crude oil import bill from September to October.

This struck me as odd, especially considering the higher relative price and the drastic nature of the drop in imports, so I took a look at the EIA’s (Energy Information Administration) data for the same periods. The EIA reported average (derived from the weekly import numbers) daily imports of crude oil of 9.06 mbpd in September and 8.74 mpbd in October; certainly not the drastic drop purported to have existed in the Census Bureau’s data. The average prices for that oil, according to the EIA, were $71.71 and $75.84 per barrel in September and October respectively. Not a big deal, right? What’s a few cents here and there? Well, it turns out when the numbers are totaled up that, according to the EIA, our oil import bill for September 2010 was $19.49 Billion, and our bill for October was $20.55 Billion, an increase of nearly a billion dollars!

What’s the Big Deal?

Regardless of why this discrepancy exists, it important that it be exposed. We can dispute the validity of data from either group. Obviously the EIA doesn’t actually go out and dipstick every storage tank from sea to shining sea each week. I’ll readily admit that. And the Census Bureau? I’m not sure they could count much of anything at this point since they’ve laid off most of their temporary help (yes, the Census Bureau is actually the subgroup of the Commerce Department that compiles and releases FT900 – the Foreign Trade Report). Perhaps there is a difference in methodologies by the two groups. Again, the reasons aren’t as important as the results.

These discrepancies in reporting are a big deal because of the takeaway messages and bias that the media applies to the data. In this case, the message is clear: The economy is primed for growth and the lower trade deficit will provide the fuel. Here’s a brief sampling…

From Bloomberg… “It is good news all around. The deficit is down as exports are up, oil imports are down, and nonoil imports rebounded moderately. The overall U.S. trade deficit in October shrank to $38.7 billion from a revised $44.6 billion shortfall the month before…. The decrease in goods imports was led by a $1.7 billion drop in industrial supplies with the crude oil subcomponent down $2.3 billion.”

From MarketWatch… “The U.S. trade deficit narrowed sharply in October, surprising economists and suggesting that the trade sector may make a positive contribution to growth in the fourth quarter for the first time since the final three months of 2009…. The value of U.S. crude-oil imports fell to $18.88 billion in October from $20.96 billion in September despite a rise in the price of a barrel of oil to $74.18 from $72.36 in the previous month. The quantity of crude imports fell to 254.5 million barrels from 289.7 million in September.”

So once again, the average person is confused. They’re hearing that our imported oil bill is decreasing; yet anything they buy that is made from or with oil is going up steadily. Another component in this report that I’ll leave for another time is the food component. A closer look at the data reveals that food price ‘inflation’ contributed quite a bit to the nominal dollar gain in exports in October’s data. This doesn’t purport well for growth anywhere, but is yet another (un)intended consequence of Central Bank quantitative easing.

Graham Mehl is a pseudonym. He is not an ‘insider’. He is required to use a pseudonym by the policies of his firm when releasing written work for public consumption. Although not an insider, he is astonishingly bright, having received an MBA with highest honors from the Wharton Business School at the University of Pennsylvania. He has also worked as an analyst for hedge funds and one G7 level central bank.

Andy Sutton is a research and freelance Economist. He received international honors for his work in economics at the graduate level and currently teaches high school business. Among his current research work is identifying the line in the sand where economies crumble due to extraneous debt through the use of economic modelling. His focus is also educating young people about the science of Economics using an evidence-based approach.