US: International Trade

Wed Jan 07 07:30:00 CST 2015

Consensus Consensus Range Actual Previous Revised
Trade Balance Level $-41.5B $-43.9B to $-40.5B $-39.0B $-43.4B $-42.2B

The U.S. trade balance again narrowed and more than expected. And again, improvement was largely due to lower oil prices.

In November, the U.S. trade gap narrowed to $39.0 billion from a revised $42.2 billion in October. Market expectations were for the deficit to narrow to $41.5 billion. Exports were down 1.0 percent after gaining 1.6 percent the month before. But imports declined a sharp 2.2 percent after rising 0.7 percent in October.

Shrinkage in the overall gap was led by the petroleum goods trade gap which dropped to $11.4 billion from $15.2 billion in October. Petroleum imports were down 11.9 percent while exports rose 5.9 percent.

The goods excluding petroleum gap increased to $45.7 billion from $45.2 billion in October. The services surplus was essentially unchanged at $40.4 billion.

On a seasonally adjusted basis, the November figures show surpluses, in billions of dollars, with South and Central America ($4.3) and Brazil ($0.6). Deficits were recorded, in billions of dollars, with China ($29.8), European Union ($12.7), Germany ($6.3), Japan ($5.6), Mexico ($4.4), South Korea ($2.9), Italy ($2.3), India ($1.7), France ($1.6), OPEC ($1.6), Canada ($1.4), Saudi Arabia ($1.3), and United Kingdom ($0.2).

Overall, the November number will likely bump up estimates for fourth quarter GDP growth.

Market Consensus Before Announcement
The U.S. international trade gap in October narrowed to a disappointing $43.4 billion from a revised $43.6 billion in September. Analysts expected the deficit to narrow to $41 billion. Exports were up 1.2 percent after sliding 1.8 percent the month before while imports added 0.9 percent after recording no change. The October petroleum goods trade gap was $15.2 billion, up from $14.0 billion in September. Petroleum imports were down 0.6 percent while exports sank 11.1 percent. The changes in petroleum no doubt reflect the drop in crude oil prices. The October decline in the goods and services deficit reflected a decrease in the goods deficit of less than $0.1 billion to $62.7 billion and an increase in the services surplus of $0.1 billion to $19.2 billion. Year-to-date, the goods and services deficit increased 5.1 percent from the same period in 2013. Exports increased 3.1 percent. Imports increased 3.4 percent.

International trade is composed of merchandise (tangible goods) and services. It is available nationally by export, import and trade balance. Merchandise trade is available by export, import and trade balance for six principal end-use commodity categories and for more than one hundred principal Standard International Trade Classification (SITC) system commodity groupings. Data are also available for 36 countries and geographic regions. Detailed information is reported on oil and motor vehicle imports. Services trade is available by export, import and trade balance for seven principal end-use categories.

Changes in the level of imports and exports, along with the difference between the two (the trade balance) are a valuable gauge of economic trends here and abroad. While these trade figures can directly impact all financial markets, they primarily affect the value of the dollar in the foreign exchange market.

Imports indicate demand for foreign goods and services here in the U.S. Exports show the demand for U.S. goods in countries overseas. The dollar can be particularly sensitive to changes in the chronic trade deficit run by the United States, since this trade imbalance creates greater demand for foreign currencies. The bond market is also sensitive to the risk of importing inflation. This report gives a breakdown of U.S. trade with major countries as well, so it can be instructive for investors who are interested in diversifying globally. For example, a trend of accelerating exports to a particular country might signal economic strength and investment opportunities in that country.

The international trade balance on goods and services is the major indicator for foreign trade. While the trade balance (deficit) is small relative to the size of the economy (although it has increased over the years), changes in the trade balance can be quite substantial relative to changes in economic output from one quarter to the next. Measured separately, inflation-adjusted imports and exports are important components of aggregate economic activity, representing approximately 17 and 12 percent of real GDP, respectively.

Market reaction to this report is complex. Typically, the smaller the trade deficit, the more bullish for the dollar. Also, stronger exports are bullish for corporate earnings and the stock market.

Both the level and changes in the level of international trade indicate relevant information about the trends in foreign trade. Like most economic indicators, the trade balance is subject to substantial monthly variability, especially when oil prices change. It is more appropriate to follow either three-month or 12-month moving averages of the monthly levels.

It is also useful to examine the trend growth rates for exports and imports separately because they can deviate significantly. Trends in export activity reflect both the competitive position of American industry and the strength of domestic and foreign economic activity. U.S. exports will grow when: 1) U.S. product prices are lower than foreign product prices; 2) the value of the dollar is relatively weaker than that of foreign currencies; 3) foreign economies are growing rapidly.

Imports will increase when: 1) foreign product prices are lower than prices of domestically-produced goods; 2) the value of the dollar is stronger than that of other currencies; 3) domestic demand for goods and services is robust.

The international trade report does show bilateral trade balances with our major trading partners. Since the value of the dollar versus various foreign currencies does not always move in tandem, we can see a narrower or wider trade deficit with different countries. In the 1980s and 1990s, the U.S. trade deficit with Japan often caused political problems. In the 2000s, the trade deficit with Japan is now smaller, but the U.S. trade deficit with China is growing rapidly. While American consumers benefit from weak imports, American workers often lose their jobs as these goods are no longer produced in the United States. Ideally, the United States would be exporting (high end) goods that other countries don't produce.