US: International Trade in Goods

December 29, 2016 07:30 CST

Consensus Consensus Range Actual Previous Revised
Balance $-62.0B $-63.0B to $-60.4B $-65.3B $-62.0B $-61.9B
Exports % change -1.0% -2.7% -2.5%
Imports % change 1.2% 1.1% 1.5%

Trade looks to be a major negative that will be holding down fourth-quarter GDP. The advance trade deficit in goods widened sharply for a second straight month in November, to $65.3 billion following a revised $61.9 billion deficit in October that was nearly $5 billion higher than the last month of the third quarter, September.

Exports have been very weak so far this fourth quarter, down 1.0 percent in November following October's 2.5 percent shortfall. Food exports have been especially soft as have vehicle exports, and capital goods exports fell very sharply in the latest report.

Widening the gap have been sharp increases in imports, up 1.2 percent on top of October's upward revised 1.5 percent increase. Imports of industrial supplies posted a very sharp increase in November as did food imports. Most other readings on the import side are narrowly mixed.

Market Consensus Before Announcement
Forecasters see November's trade deficit in goods coming in at $62.0 billion which would be a $1.4 billion improvement but, for fourth-quarter GDP, would be far short of offsetting October's $6.3 billion widening. Goods exports fell $3.5 billion in October with declines sweeping most components including aircraft and consumer goods. Imports of goods rose $2.8 billion with the gain centered in consumer goods in what was a positive sign for retail holiday expectations (though a negative for the GDP calculation). Note that the advance reading for October, like the consensus for November's advance reading, was also $62.0 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.