With global demand continuing to suffer, The US Trade Balance shrank more than anticipated in May, dropping 9.8% in the month to mark its lowest reading since November 1999. Exports increased nearly $2 billion in the month and imports continued their 10-month decline. Economists were happily surprised by the news but said the gap should widen in the coming months.
The trade balance report is a data set that reports the difference between the value of a country's exports and imports. A positive balance, or trade surplus, means exports exceed imports and illustrates that a country's economy is globally competitive. Higher exports create more domestic jobs due to the fact that US companies must satisfy domestic and foreign demand for goods and services. Greater production translates into faster growth of local economies. On the downside, a dependence upon foreign demand for US goods and services implies the domestic economy is vulnerable to weakness in foreign economic disruptions. The trade balance data is generally dependent on two factors: US growth rates relative to other countries, and the value of the dollar as changes in the value of currency can alter the relative price of goods. A strong dollar is bad for the trade balance as it allows Americans to buy foreign goods for cheaper prices, at the same time it is bad for US companies as it raises the price of goods for foreign buyers, which encourages demand to search for a lower price in another country.
- The monthly deficit was $26.0 billion; economists were expecting a $28.8 billion figure.
- Exports increased $1.9 billion in the month to $123.3 billion
- Exports were boosted by 20 aircraft orders from Boeing, while industrial supplies saw a 9.8% monthly gain.
- Exports of consumer goods ticked up 1.9%.
- Imports fell $0.9 billion to $149.3 billion, their lowest level since July 2004.
- Auto imports declined by $10.2 billion to their lowest level since March 1996.
- Petroleum Prices jumped 20.3% in the month.
- Trade Gap with China expanded by $700 million to -$17.5 billion.
“This result was better than expected, and it would seem that thee weaker U.S. dollar helped to lift total export volume during the month,” said TD strategist Ian Pollick, who noted the gain is exports was broadly based.
“On the flip side, imports were down for the second consecutive month, which underscores the lack of aggregate demand in the U.S. economy,” he added.
Analysts at RDQ said the unexpected figures could mean trade will help raise Q2 GDP by two percentage points.
“At a minimum, this suggests that the decline in real GDP should be less than current forecasts (we think that a drop of 0.5% rather than 1.5% in the second quarter is now a central forecast for GDP) and there is a significant possibility that real GDP could actually grow slightly in the second quarter, which would further add to our view that the recession ended last quarter,” they wrote in a client note.
By contrast, Deutsche Bank’s Joseph LaVorgna said there will be no impact on GDP in the second quarter.
“We doubt these figures will have much bearing on Q2 real GDP as softer imports in general could mean more Q2 inventory liquidation―the net effect on GDP would be zero,” he said.
Still, looking forward LaVorgna said the stimulus package should help GDP be positive in the third quarter.