US: International Trade in Goods

Thu Apr 26 07:30:00 CDT 2018

Consensus Consensus Range Actual Previous Revised
Balance $-74.5B $-75.9B to $-71.0B $-68.0B $-75.4B $-75.9B
Exports % change 2.5% 2.2% 2.3%
Imports % change -2.1% 1.4% 1.7%

A decline in imports eased the nation's goods deficit in March which came in much better than expected, at $68.0 billion and well under February's revised $75.9 billion.

Imports fell 2.1 percent with declines nearly across the board including a sharp 3.1 percent drop for capital goods and a 2.3 percent dip for consumer goods. Tariffs on steel and aluminum were imposed in March but there's no clear evidence of its effects in the initial data though imports of industrial supplies did fall 1.9 percent.

Exports have been very solid and rose 2.5 percent in March with gains led by a 4.0 percent jump in capital goods, which is the nation's key strength, and an 8.5 percent burst for food products.

After today's report, net exports don't look to be as much of a challenge for tomorrow's first-quarter GDP results as had been expected.

Market Consensus Before Announcement
The goods deficit is expected to narrow to a consensus $74.5 billion in March vs $77.0 billion in February (revised from an initial $75.4 billion). March's report will offer some of the first hints, if any, on the cross-border effects of U.S. metal tariffs.

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.