Trade Data Trends Signal Weakness Ahead

This morning's release of the trade deficit numbers were less than impressive.  Even more disturbing are the underlying trends.  In December, the U.S. trade deficit worsened due to a jump in imports outpacing a rise in exports.  That sounds good right?  Not so fast.   Remember, the month to month variations have little to do with discerning future outcomes.  The trends of the data are far more important in this regard.  

The trade gap expanded to $48.8 billion from $47.1 billion in November.  While exports rebounded 0.7% remember that they declined a full 1.0% in November.  Imports advanced 1.3% in December and were up 1.0% in November.   However, the year over year trends are worsening showing potential weakness in the coming quarters ahead.   The year over year decline in shipments points to weaker demand on both sides of the oceans.  This is turn leads to weaker profit margins in the future which, when cost cutting is not available, erodes the bottom line.  We can see that in the 4th quarter earnings announcements for the companies that make up the S&P 500.

The current increase in earnings in the 4th quarter, so far, is roughly 5.8% which is about half the growth rate in earnings from the first nine months of 2011 and much slower, about 1/5th the rate, at which they have grown since 2010.  However, even that is a bit deceptive as Apple and AIG have made up a bulk of the growth in ...