'Better' Trade Balance Just Masks Weakness

NEW YORK (TheStreet) -- The U.S. government's August trade report illustrates the meaninglessness of headline figures.

The trade balance shifted toward exports more than economists had predicted. The trade gap fell 3.6%, leading many to conclude than an unexpected uptick in demand from around the world shows the global economy is beginning to rev up again, foreshadowing a spike in U.S. production. That's why some news outlets have called the report "better than expected." Not so fast.

A weaker dollar stimulated foreign demand -- and will continue to do so. The dollar is now trading at a 14-month low against major currencies, helping exporters. But consumer spending is by far the biggest part of the U.S. economy.

In addition, much of the increase in exports came from Canadian demand for cars. In fact, exports to our northern neighbor rose to a nine-month high. Other countries that employed stimulus programs similar to America's so-called cash for clunkers may have lifted demand to unsustainable levels. Sure, there are short-term benefits to companies such as Ford(F Quote) and GM(GMGMQ Quote), but some U.S. car companies reported that they didn't even have enough cars to satisfy demand.

As for imports, less demand for oil skewed the balance toward exports. The U.S. imported 8.66 million barrels a day on average in August, down from 9.56 million a month earlier. It's nice to think less American money is being funneled overseas to feed our oil addiction, but the fact of the matter is that we still run primarily on oil. If Exxon(XOM Quote) and Chevron(CVX Quote) are bringing in less, it means we are producing less.