US: International Trade in Goods

August 26, 2016 07:30 CDT

Consensus Consensus Range Actual Previous Revised
Balance $-63.2B $-64.1B to $-61.0B $-59.3B $-63.3B $-64.5B
Exports % change 2.4% 0.9% 0.6%
Imports % change -1.3% 1.8% 2.3%

A surge in food exports helped cut the nation's goods gap in July to $59.3 billion from June's revised $64.5 billion. Exports of foods, feeds & beverages rose 31 percent in the month though export prices of agricultural goods actually dipped slightly in the month. Other export readings are less favorable including a decline for capital goods, reflecting weak global investment in new equipment, and a small dip for consumer goods. A dip in imports also helped narrow the headline gap in July as capital goods imports and especially consumer goods imports fell sharply. The improvement in today's headline is a big plus for early third-quarter GDP estimates but it doesn't point to strength in underlying cross-border demand.

Market Consensus Before Announcement
Imports of goods have been on the rise including for consumer goods which, though a subtraction in the national accounts, points squarely at business confidence in the consumer outlook. Imports of capital goods, however, have been weak in further evidence that confidence in the business outlook is lacking. Pointing unmistakably at trouble in global demand is weakness in exports including, like on the import side, for capital goods. Forecasters see the headline for international trade in goods showing little change, at a deficit of $63.2 billion in July vs $63.3 billion in June.

The Census Bureau is now publishing an advance report on U.S. international trade in goods. The Bureau of Economic Analysis 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.