US: International Trade in Goods

Wed Apr 27 07:30:00 CDT 2016

Consensus Consensus Range Actual Previous
Balance $-62.6B $-63.9B to $-58.0B $-56.9B $-62.9B
Exports % change -1.7% 2.0%
Imports % change -4.4% 1.6%

Trade activity slowed sharply in March though the deficit narrowed, down a sharp 9.5 percent to $56.9 billion vs February's $62.9 billion. Exports fell 1.7 percent to $116.7 billion with consumer goods showing a steep decline together with wide declines for industrial supplies, autos, and foods. A positive, however, is a 1.5 percent uptick in capital goods exports, one that follows a smaller gain in February and hints at resiliency for global business investment. But the import side of the report points at declining domestic demand with consumer goods down a very steep 9.1 percent. Capital goods are also weak, down 3.6 percent. Cross-border activity has been a major negative for the global economy and March's goods data point to continuing trouble though they will, however, give a lift to first-quarter GDP. This report represents the goods portion of the monthly international trade report which will be posted next Wednesday.

Market Consensus Before Announcement
The trade deficit in goods is expected to narrow to $62.6 billion in March vs a $64.7 billion deficit in February. Though wide, the deficit does show gains for exports which, though a negative for GDP, are otherwise a big plus for the economy and specifically for factory jobs. Exports of goods rose 1.4 percent in February and 2.0 percent in January and a similar gain for March would suggest that this year's depreciation in the dollar is beginning to give exporters some lift. The import side offers clues on domestic demand which, though rising in February, did fall back in January.

The Census Bureau is now publishing an advance report on U.S. international trade in goods. The BEA will incorporate these data into its estimates of exports and imports for the advance GDP estimates. This is expected to reduce the size of revisions to GDP growth in the second estimates.

Changes in the levels of imports and exports, along with the difference between the two (the trade balance), are valuable gauges 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 here in the United States. Exports show foreign demand for U.S. goods. 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.

Market reaction to this report is complex. Typically, the smaller the trade deficit, the more bullish it is for the dollar. Also, stronger exports are bullish for corporate earnings and the stock market. Like most economic indicators, the trade balance is subject to substantial monthly variability, especially when oil prices change.

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.