US: International Trade in Goods

Thu Dec 28 07:30:00 CST 2017

Consensus Consensus Range Actual Previous Revised
Balance $-67.7B $-69.5B to $-66.0B $-69.7B $-68.3B $-68.1B
Exports % change 3.0% -1.0% -0.4%
Imports % change 2.7% 1.5% 1.8%

Net exports look to be holding back fourth-quarter GDP following a second month of deep deficit in cross-border goods trade, at $69.7 billion in November following a revised $68.1 billion deficit in October. The monthly average for the third-quarter was much lower, at $63.8 billion.

But there is very good news in the report and that's exports which rose a very strong 3.0 percent in November in to $133.7 billion, led by strong improvement in the key category of capital goods at a 5.6 percent monthly increase, vehicles at a gain of 7.5 percent, and consumer goods which rose 4.0 percent.

Imports, however, also rose, up 2.7 percent in the month to $203.4 billion with industrial supplies up 4.7 percent, consumer goods up 4.2 percent, and capital goods up 2.6 percent.

This report also includes preliminary data on November inventories, up 0.7 percent at the wholesale level in a what will be a plus for fourth-quarter GDP that is neutralized in part by only a small 0.1 percent build for retail inventories.

The gain in wholesale inventories is a plus but two months of a rising goods deficit will take some of the shine off fourth-quarter GDP. Still, the gain in exports is a very important positive while the gain in imports of capital goods, though a subtraction for GDP, does underscore improvement underway in domestic business investment.

Market Consensus Before Announcement
The goods deficit in November is expected to narrow to a consensus $67.7 billion and only modestly below what was an unusually wide $68.1 billion in October ($68.3 billion initially reported). Looking back at October, exports fell 1.0 percent on declines in food products and capital goods while imports rose 1.5 percent on increases for industrial supplies and consumer goods. Also released with the report will be advance November 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.