US Trade Deficit: Stronger global growth and a weaker dollar - Wells Fargo

Analysts from Wells Fargo, point out that an increase in exports and a drop in imports resulted in the smallest trade balance in 11 months and suggests that net exports will be additive to GDP in the third quarter.

Key Quotes: 

“The trade deficit narrowed to $42.4 billion in August marking the smallest deficit since September of 2016 when a one-off surge in soybean exports temporarily compressed the trade deficit last autumn. A similar one-off dynamic is not immediately apparent in our read of today’s data.”

“Rather, the latest print is a continuation of a narrowing trend in the trade deficit that has been in place since earlier this year. Among the big factors influencing the nation’s trade fundamentals, two of the major ones this year have been a trend weakening in the trade-weighted value of the dollar and a firming in global growth. The weaker dollar makes U.S. goods more affordable to overseas buyers and a quickening in the pace of global growth stokes demand.”

“The United States tends to run a deficit on the goods side of the ledger and a surplus on the services side. In August, the goods deficit shrank $0.9 billion while the surplus on the services side swelled by $0.3 billion. Prospects for the U.S. manufacturing sector have brightened this year as the same tailwinds helping the trade numbers are also beneficial to manufacturing. As a case in point, goods exports were up $0.6 billion and were boosted by a $0.4 billion increase in capital goods. Consumer goods exports (mostly pharmaceuticals) also played a big role. Goods imports, on the other hand, were down $0.3 billion in August with declines in industrial supplies and capital goods.”

“The outlook for only modest U.S. GDP growth and no obvious pick-up in the pace of global growth suggests to us that the role for trade will likely be somewhat more benign and less of a swing factor as it has been at least to a small degree in the past couple of years.”