The deficit everyone quotes is not the deficit

The goods deficit was 119.6 billion. The actual one was 88.6.

Last week this letter noted that American exports of crude oil and petroleum products set a record in April. Exports are the half of the trade account that rarely reaches a headline.

The monthly trade report is where both halves are printed together. In July the United States ran a deficit of 88.6 billion dollars in goods and services combined, the Commerce Department reported.

That figure was up 17.4 billion from June, a jump of 24.4 percent in a single month. Coverage of trade data almost always leads with a larger number.

The goods deficit came to 119.6 billion dollars. It is the number that circulates, and it is about a third bigger than the deficit the country actually ran.

The difference sits in services. The United States sold 109.7 billion dollars of services abroad in July and bought 78.7 billion.

That is a surplus of 31.0 billion dollars in a single month. It cancels roughly a quarter of the goods deficit before anyone starts arguing about the rest.

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This is a goods-services gap. One side of the trade account runs a deficit that widens.

The other runs a surplus that holds. Only the first side carries a monthly headline.

Goods and services are driven by different machinery. Goods trade responds to factory location, shipping costs, and tariffs.

Services trade responds to software licensing, travel, banking fees, engineering contracts, and royalties on intellectual property. Those do not move for the same reasons, and in July they did not move together at all.

The goods deficit widened by 17.6 billion dollars in July. The services surplus grew by 0.2 billion.

Every dollar of the month's deterioration came from the goods side. The services side did not participate in the story the number told.

The composition inside goods is worth the same attention. Goods imports rose 11.4 billion dollars while goods exports fell 6.2 billion.

A deficit can widen because a country buys more or because it sells less. In July both happened at once, and the import move was nearly twice the export move.

Services exports were 109.7 billion dollars against goods exports of 201.0 billion. More than a third of what America sold the world in July was not a physical object.

That share does not appear in the sentence most readers will see. The monthly goods figure arrives two weeks before the full report, and it is the one that sets the framing.

Over the twelve months through July the country ran a total trade deficit of 743.6 billion dollars. The goods-only count for that stretch would be far larger.

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The advance goods trade balance. This lands about two weeks before the complete report and covers goods alone. A widening advance figure would show the goods side driving again, and a narrowing one would show the pressure easing before services are counted. (Source: Census Bureau)

Services exports in the monthly trade report. This line captures software, travel, finance, and licensing sold to foreign buyers. Growth there would widen the offset against goods, and a decline would leave the goods deficit closer to the whole story. (Source: Bureau of Economic Analysis)

Import and export price indexes. Trade balances are measured in dollars, so a deficit can move on prices without a single extra container crossing a dock. Rising import prices alongside a wider deficit would point to cost rather than volume, and flat prices would point to volume. (Source: Bureau of Labor Statistics)

America's largest export category is not a product at all. It is work performed for foreigners, and that work runs a surplus every month the goods account runs a deficit.

Talk soon,
The Playbook Daily