US: International Trade in Goods

Tue Nov 28 07:30:00 CST 2017

Consensus Consensus Range Actual Previous Revised
Balance $-64.8B $-66.0B to $-63.0B $-68.3B $-64.1B
Exports % change -1.0% 0.7% 1.6%
Imports % change 1.5% 0.9% 1.3%

With housing and manufacturing showing strength the outlook for fourth-quarter GDP was building, until that is this morning's advance trade and inventory data. October's goods deficit was much higher-than-expected, at $68.3 billion for a very sizable $4.2 billion increase from September. The details speak to weakness with exports down 1.0 percent, reflecting declines for food products and capital goods, while imports rose 1.5 percent on increases in industrial supplies and, once again, consumer goods.

Inventory data for October show draws for both wholesalers and retailers, at minus 0.4 percent and minus 0.1 percent respectively which are both negative for GDP.

Both trade, where the deficit had been narrowing, and inventories, where builds had been rising, were positives for second- and third-quarter GDP but the opening fourth-quarter look at these two components point to understandable give back.

Market Consensus Before Announcement
The goods deficit in October is expected to widen to a consensus $64.8 billion vs $64.1 billion in September. Looking back at September, imports rose 0.9 percent on increases for capital goods, industrial supplies and food products. Exports rose 0.7 percent but strength was isolated to industrial supplies with capital goods, consumer goods, and vehicles all down. Also released with the report will be advance October data for both wholesale inventories and retail inventories which, like net exports, are also GDP inputs.

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.

Note that data in the advance goods report are accounted for on a census basis and can differ slightly from subsequent data in the international trade report where goods data are accounted for on a balance of payment basis to adjust for changes in ownership that can occur without goods passing into or out of the US.

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.