The trade deficit shrank from -$44.655 billion in June to -$39.547 billion in July.

Economists, being the a perpetually optimist lot expected the gap to narrow further.

The Econoday Consensus estimate for August was -$39.0 billion, but the deficit actually rose slightly to -$40.7 billion.

Supposedly this is a “subtle positive“. Let’s take a look.

Highlights

The nation’s trade deficit widened by $1.2 billion in August to $40.7 but details are positive. Exports of capital goods, excluding aircraft, actually rose slightly to $37.6 billion while imports of capital goods were up $1.2 billion to $50.2 billion. These results hint at badly needed strength for cross-border business investment. When including aircraft, however, capital goods exports fell $0.7 billion in what is the lowest result in nearly 5 years.

Total exports in August rose 0.8 percent, which is another positive, while imports rose 1.2 percent. The gain for imports is a subtraction in the national accounts but it does point to solid domestic demand, specifically once again for capital goods. The trade gap for goods is unchanged from July at $60.3 billion while the trade surplus for the nation’s services, in what is a superficial negative in the report, fell $1.2 billion to $19.6 billion for the lowest showing since December 2013. But the dip in services reflects $1.2 billion in broadcast payments for the Olympics.

Today’s results may lower third-quarter GDP estimates but the export reading excluding aircraft is a subtle positive for the economic outlook.

Trade Highlights

Let’s dive into the Census Bureau Report on international trade data for more details.

  • August real dollar exports ($123.0 billion) were the highest since December 2014 ($123.0 billion).
  • August exports of capital goods ($42.1 billion) were the lowest since September 2011 ($41.6 billion).

International Trade

trade-balance-2016-10a

Trade Balance

trade-balance-2016-10b

Trade Balance Notes

  • The average goods and services deficit decreased $0.4 billion to $41.6 billion for the three months ending in August.
  • Average exports of goods and services increased $2.2 billion to $185.7 billion in August.
  • Average imports of goods and services increased $1.7 billion to $227.4 billion in August.
  • Year-over-year, the average goods and services deficit decreased $0.9 billion from the three months ending in August 2015.
  • Average exports of goods and services decreased $3.3 billion from August 2015.
  • Average imports of goods and services decreased $4.2 billion from August 2015.

Energy Comments

Imports have picked up, but they are not quite where they were in 2014. Exports have also picked up, but again they have not quite reached where they were in 2014.

Much of this has to do with energy prices.

Capital Goods and Agriculture

Bloomberg stated “Today’s results may lower third-quarter GDP estimates but the export reading excluding aircraft is a subtle positive for the economic outlook.”

I rather doubt it does anything at all to estimates.

Bloomberg also stated “Exports of capital goods, excluding aircraft, actually rose slightly to $37.6 billion while imports of capital goods were up $1.2 billion to $50.2 billion. These results hint at badly needed strength for cross-border business investment.

That is likely reading too much into a weak situation. For my take on capital goods, please see Factory Orders Rise 0.2% from 0.5% Negative Revision: Spotlight on Core Capital Goods.

For some GDP estimates involving agricultural exports please see 3rd Quarter GDP at 4% Thanks to Soybeans?

All things considered, the charts and data are rather uninspiring, but at least they are not hugely negative.

Mike “Mish” Shedlock