Trade Gap Widens at the Start of Q3
- The U.S. International Trade Gap widened in July to -$39.1 billion after narrowing significantly in June.
- Construction Spending increased by 0.6 percent in July, with gains in private nonresidential.
- The August ISM Manufacturing Index increased slightly to 55.7 percent.
U.S. economic data at the start of September remain consistent with the Federal Reserve’s expected announcement of the dialing down of QE3 on September 18. The big hurdle will be the employment and unemployment data for August which will be released on Friday morning. We will get a preview of the August labor situation tomorrow from the ADP employment report and from the weekly unemployment insurance claims data.
The U.S. international trade gap remains on a narrowing trend. However, it widened in July after closing significantly in June. The July trade gap pushed out to -$39.1 billion as total imports increased by $3.5 billion while total exports decreased by $1.1 billion. The widening of the trade gap at the start of the third quarter suggests that trade will not provide a big push to current quarter GDP. Petroleum exports increased in July to $12.5 billion. This was the fourth consecutive monthly increase in petroleum exports, reflecting rapidly growing energy supplies in the U.S. due to shale-based production. Nonpetroleum exports of goods are still about 10 times that amount, and decreased in July. Petroleum imports ticked up in July to $31.3 billion but remained below their 2012 monthly average of $34.6 billion. The July real (inflation adjusted) balance of trade in goods widened to -$47.7 billion ($2009), about even with the Q2 average, suggesting that trade will not be a driver for current quarter GDP unless something unexpected happens to exports or imports.
Total construction spending for July increased by 0.6 percent as nonresidential private construction expanded. Private nonres gained 1.3 percent for the month, pushed by growth in lodging, manufacturing and education. Private nonres construction was up 2.0 percent over the previous 12 months, showing no real growth in a year after adjusting for inflation. Private residential construction spending was also up by 0.6 percent in July, and up 17.2 percent over the previous 12 months. Public construction continued to be a drag, declining by 0.3 percent in July. Total public construction was down 3.7 percent over the previous 12 months, reflecting the wind down of fiscal stimulus spending, and the tightening federal budget.
The ISM Manufacturing Index for August improved to 55.7 percent, comfortably above the break-even 50 mark. Most major categories were positive. The new orders component increased to 63.2. Production slipped to a still-strong 62.4. However, both inventory components remained below 50, indicative of contracting inventories of both producers and their customers. Declining manufacturing inventories in the middle month of the third quarter are a negative indicator for Q3 GDP growth.
Market Reaction: U.S. equity prices are down. Treasury yields are up. NYMEX crude oil is down to $107.39/barrel. The dollar is down against the yen and the euro.
For a PDF version of this Comerica Economic Alert, click here: Int Trade 090413.