Weekly Economic Trends and Indicators

The Headline

The U.S. trade deficit increased by about $1 billion on a seasonally adjusted basis (about 1.6%) in January, moving from $67.2 billion to $68.3 billion. Exports jumped by 3.4% from $249.0 billion to $257.5 billion, which was the largest monthly increase since April.

The Details

International trade has been on something of a roller coaster lately, driven by unusually large swings in the value of the dollar since the onset of the COVID-19 pandemic. Worldwide crises often cause a rise in the value of the dollar as the world seeks the relative safety of the U.S. economy. COVID-19 was no exception as it caused about a 7% increase in the trade weighted value of the dollar at the onset of the pandemic in March 2020. By the summer of 2021, the dollar had returned to its pre-pandemic levels, only to climb to its highest level in recent years by October 2022. The most recent spike in the value of the dollar is largely due to economic difficulties in the U.K. in the second half of 2022. As the U.K. economy has stabilized recently, the dollar has retreated, which—as is reflected in January’s data—is good for U.S. exports.

The Context

The value of the dollar influences the trade balance by changing the prices faced by our international customers as well as the prices we pay abroad. When the U.S. dollar is strong, it is a great time for Americans to travel to other countries as a tourist because our currency has more buying power in the world. Prices in other countries look cheaper to us. Of course, the opposite is true when the dollar loses value. The world then looks more expensive to us, while international tourists flock to the relatively less expensive U.S.

Similarly, U.S. exporters benefit from a weak dollar because their products look less expensive to international customers. When the dollar strengthened due to COVID-19, exports fell dramatically and recovered in 2021 only to decline again in 2022 when the dollar’s value rose again. While the dollar has retreated somewhat from its recent highs, it still remains uncomfortably high, which is likely to constrain demand for U.S. exports compared to 2021.

Local Statistics

The Davenport-Moline-Rock Island IA-IL Metropolitan Statistical Area (MSA) exported $6.3 billion worth of goods in 2021 (most recent year available). We ranked 52^nd out of 389 areas for which data is available. As the Quad Cities is the 147^th largest MSA by population, this is a testament to the tremendous influence that international trade has on the local economy. Local industries that were leaders in exports in 2021 include machinery (QC ranked 7^th in the nation), fabricated metal (25^th), beverage and tobacco (42^nd), and transportation equipment (42^nd). (Source: International Trade Administration, U.S. Dept. of Commerce)

Next week: Looking ahead to the Federal Reserve meeting.