US: International Trade in Goods

October 26, 2016 07:30 CDT

Consensus Consensus Range Actual Previous Revised
Balance $-60.5B $-64.8B to $-58.0B $-56.1B $-58.4B $-59.2B
Exports % change 0.9% 0.7% 0.6%
Imports % change -1.1% 0.3% 0.6%

In a positive for Friday's third-quarter GDP report, the nation's trade gap in goods narrowed sharply in September, to $56.1 billion vs a revised $59.2 billion in August. Exports in September rose a solid 0.9 percent led by the largest component, capital goods, which rose 3.8 percent in what is a positive indication for global business investment. Exports of consumer goods also rose, up 4.4 percent, with industrial supplies up 2.3 percent. Also helping the deficit is a 1.1 percent decline in imports where most components fell with the exceptions of autos, up 4.3 percent, and other goods, up 0.8 percent. In a negative indication of retail expectations for the holidays, imports of consumer goods fell 1.8 percent following a 0.6 percent decline in August. And in a negative indication for domestic business investment, imports of capital goods fell 3.6 percent. Also released this morning are advance data on September inventories in the wholesale and retail sectors, up 0.2 percent for the former and up 0.3 percent for the latter.

Market Consensus Before Announcement
The nation's trade deficit in goods totaled $60.3 billion in August (revised from $58.4 billion) and forecasters see little change in September with the consensus at $60.5 billion. Goods exports rose a solid 1.0 percent in the prior report led by industrial supplies, vehicles, and also consumer goods. Imports also rose but in perhaps a sign of weakness in business confidence, imports of consumer goods declined for a second month.

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.