US: Improvement in trade deficit – RBC Economics

Josh Nye, Economist at RBC Economics, notes that the US trade deficit fell to -$39.5B in July from -$44.7B in June, a stronger improvement than markets expected but in line with last week’s advance trade report.

Key Quotes 

“The 1.9% rise in exports was the strongest in more than two years although it was narrowly based. Imports fell 0.8% following three solid monthly gains.

The increase in goods exports can be fully accounted for by an anomalous 34% jump in food, feed and beverage imports that reflected a massive increase in soybean exports. Excluding that component, goods exports were little changed relative to June as a rebound in auto exports was offset by a decline in the volatile “other merchandise” component.

The decline in imports reflected a pullback in capital goods and consumer goods imports, both of which partially retraced gains recorded in June. The decline in capital goods imports is disappointing given recent weakness in M&E investment, although it comes amid other signs of improving business investment including yesterday’s reported increase in nonresidential construction spending.

An even greater improvement in the real trade balance has positive implications for Q3 GDP, although we are taking a cautious approach given the narrowly based gain in exports. As such, our forecast assumes net exports will provide zero contribution to growth in the third quarter.”