Today’s release of the trade deficit numbers (exports – imports) was not a shocker given the recent uptick in auto sales and weaker oil prices over the last month. However, don’t get overly excited as we may very well see a sharp reversal in the coming month if the weak manufacturing indexes are any indication of real activity.
Also, the recent strength in dollar, if you can call it that, has also help the situation. As I said, while the bulls may get all excited over a one month number we have seen this headline before with the trade deficit:
March 2011: -46,397
April 2011: -43,242
May 2011: -50,182
June 2011: -51,570
July 2011: -44,809
I would argue that while the July 2011 deficit number improved marginally back to April levels the overall economic enviroment has deteriorated since that period.
This gives way to the fact that while this trade deficit number may provide a small positive push to Q3 GDP, since net exports are a primary component of the calculation, it is unlikely that it will provide a signifcant overall change particularly if the trend does not persist next month.
The series, has been showing unusual volatility in recent months, tied to the Japanese earthquake, and to oil and gold price variations. I still expect the general trend in the U.S. trade deficit to be one of net deterioration as consumers remain in a deleveraging process and are consuming less, hence lower import numbers. Furthermore, any collapse in exports due to weaker international economies or further deterioration in U.S. consumption could lead to a quick increase in the deficit which would negatively impact future growth expectations.
This months number does not materially change our outlook for a 1 to 1.4% range in GDP growth for the Q3.