US: International Trade in Goods

Wed Mar 28 07:30:00 CDT 2018

Consensus Consensus Range Actual Previous Revised
Balance $-74.0B $-76.4B to $-73.0B $-75.4B $-74.4B $-75.3B
Exports % change 2.2% -2.2% -2.4%
Imports % change 1.4% -0.5% -0.2%

The nation's trade deficit in goods failed to improve in February, at a very steep $75.4 billion which is nearly $1.5 billion deeper than Econoday's consensus and little changed from January's revised $75.3 billion. Imports rose 1.4 percent in the month with foods rising sharply along with imports of capital goods and industrial supplies as well. Imports of vehicles rose sizably but not consumer goods which posted only a small gain.

Exports are actually strong in this report, up 2.2 percent with gains centered in vehicles, which are usually a weak category, and also capital goods which is the nation's strength. Exports of consumer goods, a major weakness, declined sharply after bouncing higher in January.

Based on two months of data, net exports won't be helping first-quarter GDP though the negative pull may be offset by a rising inventory build, data for which were also released this morning.

Market Consensus Before Announcement
The goods deficit in February is expected to narrow to a consensus $74.0 vs $75.3 billion in December (revised from an initial $74.4 billion). Exports weakened in January, including declines for capital goods and industrial supplies to open the first-quarter trade balance on a negative note. Also released with the report will be advance February data for both wholesale inventories and retail inventories which, like net exports, will also be inputs into first-quarter GDP.

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.