US: International Trade in Goods

January 26, 2017 07:30 CST

Consensus Consensus Range Actual Previous Revised
Balance $-65.5B $-66.0B to $-63.5B $-65.0B $-65.3B
Exports % change 3.0% -1.0% -0.8%
Imports % change 1.8% 1.2% 1.4%

Exports shot 3.0 percent higher in December but were matched by the larger category of imports which rose 1.8 percent, a combination that keeps the monthly trade deficit little changed at $65.0 billion in December vs $65.3 billion in November. The Econoday consensus was looking for a bit wider gap in December, at $65.5 billion.

Export strength is in the largest component, that is capital goods which include aircraft and which rose 7.3 percent in the month to $45.0 billion. A small gain in exports of industrial supplies offset a small decline in exports of foods.

On the import side, autos show the largest monthly rise at 5.4 percent to $30.9 billion. Imports of capital goods rose 2.0 percent to $50.4 billion with industrial supplies up 2.2 percent and foods up 1.3 percent.

The strength in capital goods readings is a positive that points to improvement in global business investment. Otherwise, today's results are close enough to expectations not to unsettle the outlook for tomorrow's fourth-quarter GDP report where growth of 2.2 percent is expected.

Market Consensus Before Announcement
Hit by sharp declines in exports, the nation's trade deficit in goods widened sharply in November, to $66.6 billion (revised from $65.3 billion in the advance report). Adding to the deficit was a rise in imports centered in consumer goods. Forecasters see December's trade deficit in goods narrowing $1.1 billion to $65.5 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.