US: International Trade in Goods

July 28, 2016 07:30 CDT

Consensus Consensus Range Actual Previous Revised
Balance $-61.1B $-62.7B to $-60.2B $-63.3B $-60.6B $61.1B
Exports % change 0.9% -0.2% -0.3%
Imports % change 1.8% 1.6% 1.9%

Exports of goods improved in June though imports rose even more, making for a $63.3 billion goods deficit in the month. The mix will pull down tomorrow's second-quarter GDP report, where exports are a subtraction, but nevertheless is a welcome sign of strength in cross-border demand.

Exports rose 0.9 percent led by gains for foods and for consumer goods. Exports of capital goods, which have been weak, posted a solid monthly gain, also at 0.9 percent. The import side shows a big gain for industrial supplies where price inflation for oil is at play but also a 1.2 percent gain for capital goods imports and a second very strong gain for the leading component, consumer goods which rose 3.3 percent following May's 2.7 percent. Gains in imports of consumer goods point to business confidence in consumer demand.

Watch for the complete international trade report next Friday, a report that will include services where U.S. exports are very strong.

Market Consensus Before Announcement
Imports of petroleum, due to this year's upswing in oil prices, have been inflating the nation's goods deficit. When excluding petroleum, goods imports have mostly been on the rise including for consumer goods which, though a subtraction in the national accounts, points squarely at business confidence in U.S. retail expectations. Imports for capital goods, however, have been weak in further evidence of weakness in business confidence. Pointing unmistakably at trouble in global demand is weakness in exports including, like on the import side, for capital goods.

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.