Comerica Economic Weekly

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.

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.

Wholesale inventories for June were weak, down 0.2 percent. All else being equal, this would supply a small offset to the expected upward revision to Q2. A reasonable guess for the final Q2 real GDP growth rate is about 2.3 percent.

The Jobs Openings and Labor Turnover Survey for June show stable labor markets through the first half of 2013, with a stable jobs openings rate and relatively stable hires and separations rates. Initial claims for unemployment insurance for the week ending August 3 increased by 5,000 to hit 333,000. The overall trends in both JOLTS and claims look consistent with ongoing moderate job growth in August. August labor data will be an important consideration for the Federal Reserve.

The ISM Non-Manufacturing Index for July came in solid at 56.0 percent. 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. 

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly080913.

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