The U.S. trade deficit

The U.S. trade deficit in July worsened significantly and oil had only a little to do with it. Businesses appear to be gambling on recovery actually happening as nonoil imports spiked. The overall U.S. trade gap worsened to $32.0 billion from a revised $27.5 billion gap in June. The latest deficit was notably more negative than the consensus estimate for $28.0 billion in red ink. The good news is that exports posted a gain of 2.2 percent after a 2.1 percent increase in June. However, imports jumped 4.7 percent after a 2.5 percent rise in June. The worsening in the trade deficit was due to a wider nonpetroleum goods deficit which grew to $23.5 billion from $19.8 billion the previous month. Import gains were widespread but led by autos and consumer goods. The jump in auto imports likely was related to the cash-for-clunkers program. Imports of capital equipment also rose sharply, indicating that businesses are starting to look ahead for upgrading production facilities as the economy rebounds. Meanwhile, the petroleum gap grew to $17.9 billion from $17.3 billion the previous month. The wider petroleum deficit was due to both higher oil prices and more barrels imported. Crude oil prices jumped to $62.48 per barrel from $59.17 in June. The number of barrels that was imported in July rose 5.7 percent. Nonetheless, the widening in the oil deficit was far less than that for the nonoil gap.Year-on-year, overall exports improved to minus 22.4 percent from minus 22.7 percent in June while imports edged up to down 30.4 percent from minus 31.3 percent the previous month.Today's trade report showed a spike in the trade deficit partly due to cash-for-clunkers but businesses still anticipate demand to be up for consumer goods excluding autos and for capital equipment. And manufacturing is getting a boost from exports. Overall, global trade is warming up a bit and that is good news.
Market Consensus Before AnnouncementThe U.S. international trade gap had both good news and bad news for June. The overall U.S. trade gap widened to $27.0 billion from a revised $26.0 billion deficit the previous month. Exports advanced 2.0 percent while imports rebounded 2.3 percent. Part of the bad news was that consumers were paying more for oil products. The widening in the trade shortfall was due to a wider petroleum deficit which expanded to $17.2 billion from $13.3 billion in May. In contrast, the goods excluding petroleum gap shrank significantly to $20.0 billion from $22.6 billion in May. Behind the boost in the petroleum gap were both higher oil prices and more barrels imported. But the good news in June was the 2.0 percent gain in exports. This was good news for U.S. manufacturers.