July was a flat month for US goods exports and a strong month for US goods imports, making for a sharp $6.1 billion rise in the nation's goods deficit to $102.7 billion. This is the deepest deficit since April last year.

Goods exports moved marginally lower to $172.9 billion in the month which, though not improving, is still a solid total and up 4.4 percent compared to July last year. Industrial supplies are the US's largest export category rising 0.3 percent in the month with capital goods exports, a special US strength, up 3.8 percent for year-over-year growth of 12.5 percent. Yet exports of vehicles are suffering, down 11.3 percent in the month for yearly contraction of 17.4 percent. Consumer goods exports, like vehicles, are another US weakness, falling 3.6 percent in the month.

High levels of goods imports, at $275.6 billion in July, are bad for the nation's balance but, in some cases especially when it comes to productive equipment, are strong positives for the US economy. Capital goods imports have been very favorable, up 4.0 percent on the month for outstanding yearly growth of 16.4 percent. Imports of consumer goods don't help productivity but they do point to solid domestic demand with this category up 0.9 percent for annual growth of 4.5 percent. Vehicle imports, however, aren't pointing to much consumer strength, down 0.6 percent for a second month in a row.

For GDP, today's results get the third quarter off to a bad start. Net exports of goods and services pulled GDP lower in both the first and second quarters this year with a third straight quarter of trouble in the works.

The US goods deficit (Census basis) is expected to widen by $1.4 billion to $98.0 billion in July after narrowing by $2.5 billion in June to $96.6 billion.

This monthly report offers advance import and export data on the goods components of the monthly trade report. Goods make up roughly two-thirds of the nation's exports and roughly three-quarters of imports.

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 cross-border ownership.

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.