Trade Gap Stunner Says Q2 GDP to be Revised Up
- The U.S. International Trade Gap narrowed significantly in June to -$34.2 billion.
- Better-than-expected trade data for the end of Q2 implies a sizeable upward revision to Q2 GDP.
- The Jobs Openings and Labor Turnover Survey (JOLTS) for June showed a stable hiring rate.
- The July ISM Non-Manufacturing Index increased to 56.0 percent. A good start to Q3.
The U.S. international trade gap narrowed significantly in June to -$34.2 billion. The better-than-expected trade data strongly implies that GDP for the second quarter will be revised up when the preliminary (second) estimate is released on August 29. The advance (first) estimate of Q2 real GDP growth of 1.7 percent required a place holder for the June trade data. As long as other revisions do not completely offset the June trade data, and that is unlikely, Q2 real GDP growth will be revised upward, above 2.0 percent.
The marked improvement in the June trade gap came as nominal exports increased by $4.1 billion, and nominal imports declined by $5.8 billion. Energy was part of the story, but not the whole story. Petroleum exports increased by $1.4 billion in June, while petroleum imports declined by $2.0 billion. Non-petroleum exports of goods gained another $2.9 billion with help from increased capital goods exports. Non-petroleum imports of goods fell by $4.0 billion with weaker inflows of consumer goods including cell phones. Rapidly increasing U.S. energy production is expected to continue to have a positive impact on the U.S. international trade gap. However, the trade data can be volatile and some bounce back in the July data should not come as a surprise. With the June trade data, the price adjusted trade balance in goods for the second quarter is now less than it was in the first quarter. This implies that that trade will be revised to be a mild positive for Q2 GDP, rather than a moderate drag as reported in the advance estimate, adding as much as one full percentage point to Q2 GDP growth.
JOLTS data for June show stable labor market trends through the first half of 2013, with a stable jobs openings rate and relatively stable hires and separations rates. The trends are consistent with ongoing moderate payroll job growth.
The ISM Non-Manufacturing Index for July came in stronger than expected at 56.0 percent, well above the break-even level of 50.0. Employment, production and new orders were all strong and anecdotal comments were generally positive. Sixteen industries reported growth and only two, mining and healthcare, reported contracted. It is interesting to note that healthcare employment was a weak component of the July payroll jobs data. The one negative anecdotal comment that was reported in the July ISM release was from the healthcare industry. The comment said that federal budget sequestration and healthcare reform are causing uncertainty in the industry.
Market Reaction: U.S. equity prices are down. Treasury yields are up. NYMEX crude oil is down to $105.36/barrel. The dollar is down against the yen and up against the euro.
For a PDF version of this Comerica Economic Alert, click here: Int Trade 080613.