Trade deficit narrows in July

The trade deficit narrowed to $42.8 billion in July from $49.8 billion in June. Imports fell 2.1% in the month (in nominal terms), while exports rose 1.8%. The real trade gap narrowed to $47.7 billion in July from $53.6 billion in June.

BOTTOM LINE

Trade was a massive ‘drag’ from real GDP growth in the second quarter as a surge in imports ‘subtracted’ 4½% points from second-quarter growth. While we saw nothing weak in a 49% annualized surge in imports of capital goods in the second quarter in real terms, the GDP arithmetic of C + I + G + X – M translates that into ‘weaker’ growth. The good news, therefore, from this green-eye-shade perspective is that the third quarter is starting with no drag on growth (meaning the growth rate of domestic demand is on track to feed through to GDP growth). Trade flows are volatile and we like to look at trends. This approach, with export volumes up 17.1% (annualized) over the last three months and imports up 23.0% on the same comparison suggests the rebound in world trade is continuing, which is good news for manufacturing activity. Export growth to the E.U. remains the most sluggish, while exports to Asia, North America, and South America continue to grow at a rapid rate (exports to OPEC countries are also beginning to pick up).

Source RDQ

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