24) Economic Indicators: Trade Balance Report

by · October 16, 2010

What It Is

The Trade Balance report is prepared by the Bureau of Economic Analysis the nineteenth of every month. The data are based on the two months preceding the official release of the report.

The purpose of the report is to determine the overall standing of the country’s economy against other world economies. It also tries to identify the level of relationship the United States has with other nations. The report covers a lot of areas, including informational and financial management, and service trade balances. However, it’s most important information will be the trade deficit or the difference between U.S. imports and exports. All values in the report are presented in their current dollars.

Basic Information

Current account is one of the main highlights in the report. It is defined as the percentage of total GDP or gross domestic product (it measures the size of current account against the entire country’s output). It covers investment income, physical goods and services trade, as well as unilateral transfers. To get more comprehensive information about current accounts, including the quarterly breakdown of receipts between other countries and the United States, you have to relate the Trade Balance Report with Current Account Deficits and Understanding the Current Account in the Balance of Payments.

There are some interesting facts you need to learn about the report. First you will notice that there will always be surplus in the category of informational and financial management services. This is understandable as these are some of the biggest exports of the country. Among physical goods, two of the biggest are consumer-related items and petroleum (or other forms of energy).

All in all, though, the report may show you that the county is running on a deficit. Though “deficit” seems like a bad word to use, it generally is not if you’re talking about the country’s economy. By deficit, we mean that there are more imports and exports. The needs of the people are getting higher as the country goes into massive expansion. The only issue that needs to be watched out for is the continuous spending for imports. Because of the deficit, there could be less money brought in, which can be derived from exports.

Moreover, the trade deficit should be offset by U.S. foreign investment assets in equal dollar amount. This means that if the goods are purchased at, say, $1 million, the country from which the goods are coming from should also hold the same amount.

On the part of those who are exporting, they hope that the deficit will remain or fall. This will be a sign that there is a need for exported goods in the other countries.
How the Report Is Valuable

Trade balance report is an important component of the GDP, comprising 25 percent of its total value. The report compares figures in a six-month period, with highlights on rates of changes as well as list of countries that have the biggest balance percentages. It is released monthly, so it’s relevant and timely. It can also be well understood as figures are available in nominal dollar amount.

Things to Watch Out For

You need to have this report along with the quarterly released ones to reconcile certain transactions. It doesn’t have any effect on the long-term economy and stock market. Because it factors in energy and consumption, the information can be very volatile.

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