June International Trade, Consumer Credit, August UI Claims

             Trade Gap Narrows, Points to Upward Revision to Q2 GDP, Claims Improving

  • The U.S. International Trade gap narrowed more than expected in June to -$42.9 billion.
  • The trade numbers imply an upward revision to Q2 real GDP growth of about 0.5 percent, to 2.0 percent.
  • June Consumer Credit increased by $6.5 billion with gains in non-revolving balances.
  • Initial Claims for Unemployment Insurance dropped by 6,000 for the week ending August 4, to 361,000.

After a string a soft economic reports through mid-summer we are starting to see some more positive developments. Today we see that the U.S. international trade gap for June narrowed more than expected to -$42.9 billion. This is important for Q2 GDP, as the initial estimate of each quarterly GDP data point is based on incomplete international trade data. Today’s trade data imply an upward revision of Q2 real GDP of about 0.5 percent, which would bring the overall real GDP growth rate up to 2.0 percent for the quarter, giving us a little more momentum heading into Q3. Nominal exports increased by $2.7 billion for the month while nominal imports declined by $3.5 billion. After adjusting for price changes the real balance of trade in goods narrowed by $3.5 billion ($2005), the narrowest it has been this year. Gains were seen in all major categories of goods exports. Merchandise exports to Europe are still cycling down, barely positive on a year-over-year basis in June, after being up by as much as 25 percent in April 2011.  Exports to China are showing a similar pattern, cycling down on a year-over-year basis after strong gains in 2011.

More good news came from the weekly unemployment insurance claims data. Initial claims for the week ending August 4 dropped by 6,000 to hit 361,000. While there is still a certain amount of muddiness in the data, we do get a cleaner read in late summer than in early summer, and then back-to-school and Labor Day muddies it up again. Initial claims data appears to be leveling out after increasing from April through June, providing an indication that the July uptick in employment will likely be sustained in August. Consumers continued to leverage up in June, adding on $6.5 billion to their revolving and non-revolving credit balances. All of the June gain reflected increases in non-revolving credit, as consumers took advantage of high auto affordability and replaced their very old cars.

Market Reaction: U.S. equities have reversed opening losses. Treasury yields are up. NYMEX crude oil is up to $93.89/barrel. The dollar is up against the yen and the euro.

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