US: International Trade in Goods

Fri Jan 26 07:30:00 CST 2018

Consensus Consensus Range Actual Previous Revised
Balance $-69.0B $-69.5B to $-66.8B $-71.6B $-69.7B $-70.0B
Exports % change 2.7% 3.0% 3.3%
Imports % change 2.5% 2.7% 3.0%

Cross-border goods trade is very strong even if the nation's deficit is increasing. The goods deficit for December widened to $71.6 billion though exports, totaling $137.6 billion, jumped sharply for a second month, up 2.7 percent following November's revised 3.3 percent gain. But the rise in exports was outdone by the larger category of imports which came in at $209.2 billion for a 2.5 percent increase.

Looking at details, exports show wide strength including for the central component of capital goods which rose 2.7 percent to $47.6 billion following November's 5.6 percent gain. Exports of consumer goods, which are usually a weakness for the nation, are also up with a 2.7 percent gain to $17.5 billion following the prior month's 4.1 percent rise. But the biggest weakness in the U.S. trade picture remains imports of consumer goods which, at $55.6 billion in the month, surged 6.0 percent following November's 4.8 percent increase.

The cross-border economy is very active though dependence on foreign consumer goods continues to widen the deficit. Note that today's data are incorporated into the net export component of this morning's fourth-quarter GDP report which widened noticeably.

Market Consensus Before Announcement
The goods deficit in December is expected to narrow to a consensus $69.0 billion vs an unusually wide $70.0 billion in November ($69.7 billion initially reported). November's data actually pointed to very strong cross-border demand with goods exports rising a sharp 3.3 percent to $134.0 billion and imports, which however are a negative in the GDP calculation, up 3.0 percent to $204.0 billion. Also released with the report, and also GDP inputs, will be advance December data for wholesale inventories, where the build is seen at 0.3 percent, and retail inventories which are only expected to inch 0.1 percent higher.

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.