US: International Trade in Goods

September 29, 2016 07:30 CDT

Consensus Consensus Range Actual Previous Revised
Balance $-62.3B $-64.0B to $-59.2B $-58.4B $-59.3B $-58.8B
Exports % change 0.7% 2.4% 3.0%
Imports % change 0.3% -1.3% -1.0%

The nation's deficit in goods trade narrowed slightly to $58.4 million in August. Exports rose a solid 0.7 percent in the month reflecting strength in industrial supplies, vehicles, and also consumer goods. The gain in exports comes despite a 3.5 percent monthly fall back in food exports which surged 34 percent in July and made for a rare 3.0 percent jump in that month's total exports. Imports also rose in the latest month, up 0.3 percent and reflecting a bounce back for capital goods as well as a gain in food. The gain in exports is welcome as is the gain in capital goods imports. Today's report points to little change in next week's international trade data.

Market Consensus Before Announcement
A surge in food exports helped cut the nation's goods gap from June's $65.6 billion to $60.3 billion in July (revised from $59.3 billion). But other export readings were less favorable including a decline for capital goods that points to weak global investment in new equipment. Imports of consumer goods were also weak in July which is a plus for GDP but points to lack of business confidence in domestic consumer demand. Forecasters see the headline for international trade in goods widening following July's dip, to a consensus deficit of $62.3 billion.

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.