U.S. Economic Data Continues a Strong Run
- The U.S. International Trade Gap narrowed to -$41.5 billion in June, adding to Q2 GDP.
- The ISM Non-Manufacturing Index advanced to 58.7 in June, its best reading ever, since 2008.
- The Composite Index for Mortgage Applications ticked up by 1.6 percent for the week ending August 1.
U.S. economic data have been on a strong run. That continued yesterday and today with the release of June international trade data and the July ISM Non-Manufacturing index. The U.S. trade gap narrowed by more than expected to -$41.5 billion for the last month of Q2. This implies a small upward revision to Q2 GDP growth, in the neighborhood of 0.3 percent, if all other components of GDP remain the same in the upcoming second estimate. So as of now, we stand to see a 4.3 percent annualized growth rate for Q2 real GDP when the second estimate is released on August 28. Nominal exports increased marginally in June. The support to the trade gap came from an unexpected decline in nominal imports, down $2.9 billion for the month, with reduced imports of cars and consumer goods. Energy continues to exert a positive influence on the balance of trade. Net trade in petroleum has improved from a -$24.0 billion balance in January 2013 to -$14.7 billion this June, with both gains in exports and reductions to imports. U.S. merchandise exports to major trading partners are generally improving. Nominal merchandise exports to Canada are up 8.8 percent over the 12 months ending in June. Mexico is up 11.5 percent. European Union, 7.8 percent. China 1.9 percent.
The July ISM Non-Manufacturing Index climbed into record territory for its short life. Since its introduction in January 2008, the ISM NMF index has never been as high as it was in July, at 58.7 percent, indicating strongly improving conditions in the service sector. All ten sub-indexes were above 50. Interestingly, the inventories sub-index did decline, from 53.5 to 51.0, indicating that inventories were still expanding, but at a slower rate. In the separately reported ISM Manufacturing Index for July, the inventory sub-index fell below 50 to 48.5, indicating a slight contraction of inventories for manufacturing industries. These two inventory indexes support our view that the Q2 run-up in inventories, which significantly boosted GDP growth, is not sustainable. We expect to see lower inventory accumulation in the current third quarter. That will contribute to a more moderate real GDP growth rate in the vicinity of 2.2 percent.
Total mortgage applications ticked up at the end of July. The Mortgage Bankers’ Association Composite Index ticked up by 1.6 percent for the week ending August 1. The gain came from refis, up 3.8 percent. Mortgage apps for purchase dipped by 1.3 percent, continuing a soft trend through July and indicating a lackluster start to home sales in August.
Market Reaction: U.S. equity prices are up, reversing recent losses. The 10-year Treasury yield is down to 2.47. NYMEX crude oil is up to $97.47/barrel. Natural gas futures are up to $3.91/mmbtu.
For a PDF version of this Comerica Economic Alert click here: Int Trade 08-06-14.