The international trade balance measures the difference between imports and exports of both tangible goods and services. Imports may act as a drag on domestic growth and they may also increase competitive pressures on domestic producers. Exports boost domestic production. Why Investors Care
| Released on 10/11/07 For Aug 2007 | ||||||||||||
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Highlights
The nation's trade gap narrowed noticeably in August to $57.6 billion from a revised $59.0 billion in July. The August number came in just below the market forecast for a $59.8 billion shortfall and compares with the initial estimate for July of $59.2 billion. The improvement reflects both a decline in imports and a rise in exports. Overall, the numbers are showing a slowing in domestic demand in the U.S. but indicate exports are providing a boost to the economy. Even though the narrowing of the trade gap will add to third quarter GDP growth, the Fed will like the moderation in consumer spending implied by the numbers.
The merchandise trade gap (Census basis) in August improved to $64.5 billion from a revised $65.5 billion deficit in July. The goods gap excluding petroleum shrank to $40.2 billion in August from $41.5 billion in July.
Export strength was in industrial supplies, up $927 million; food, feeds & beverages, up $606 million; and consumer goods, up $186 million. Capital goods were down $216 million while automotive exports were down $952 million. However, both of these declines were coming off very strong numbers in July with the capital goods swing in the volatile civilian aircraft component. Overall, exports remain on a healthy uptrend.
Import weakness was led by industrial supplies, down $689 million; automotive, down $379 million; and consumer goods, down $201 million. Lone strength was in capital goods which posted a $330 million increase. The import numbers are showing some softening in consumer spending in the U.S. while investment in capital equipment is holding up so far.
The oil trade deficit rose slightly in August to $24.3 billion from $24.0 billion in July. Crude oil prices in July jumped to $68.09 per barrel from $65.56 per barrel in July.
On a bilateral basis, the goods deficit with Mexico increased from $5.6 billion in July to $6.9 billion in August. The goods deficit with China decreased from $23.8 billion in July to $22.5 billion in August. The goods deficit with the European Union decreased from $13.0 billion in July to $10.2 billion in August. Country balances are not seasonally adjusted.
Today's numbers show important shifts in the U.S economy. The consumer sector is moderating and exports remain strong. This is a good shift for policy purposes. The moderation in consumer demand also gives the Fed more room to consider lower interest rates sooner than later.
The U.S. international trade gap narrowed slightly in July to $59.2 billion from $59.4 billion in June. However, we are likely to see a widening in the gap in August due to higher oil prices. While the headline number will likely be negative, markets need to pay attention to some key detail. It will be important to look at the non-petroleum deficit to see if export growth is offsetting imports. With the consumer sector slowing due to more moderate job growth and over sluggish growth in home equity, it is important that exports help keep overall economic growth healthy in coming quarters. With earlier declines in the dollar, we are indeed likely to see the uptrend in exports continue.
International trade balance Consensus Forecast for August 07: -$59.8 billion
Range: -$62.3 billion to -$58.0 billion
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Exports grow when foreign economies are strong. The weaker the foreign exchange value of the dollar, the less expensive goods and services are to foreigners, and this also helps spurt export activity. Imports grow when U.S. economic growth is robust. Imports are also spurred by a strong foreign exchange value of the dollar. |
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The international trade balance has posted a deficit almost continuously since the 1980s. Any trade deficit is a drag on U.S. GDP growth, but a smaller deficit adds to growth, while a larger deficit decreases GDP growth. |
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