July Trade Data Roundup

September 9, 2010

U.S. and Canadian July trade figures, released today, offered a very stark contrast in absolute terms and relative to market expectations.

The U.S. goods and services deficit contracted 14% from June’s elevated $49.8 billion but was nonetheless the second biggest shortfall of 2010 and $1.77 billion greater than the first-half average deficit of $41.0 billion per month.  Analysts had predicted a deficit of about $48 billion in July.  Exports climbed to their highest level since August 2008 (September 2008 for goods exports).  If August and September deficits are similar to July’s, net foreign demand will exert considerably less, if any, drag on GDP growth this quarter than the negative 3.4 annualized percentage point impact seen in the second quarter. 

The Canadian trade deficit of CAD 2.74 billion in July was nearly three times greater than expected, the biggest gap since long before the Great Recession, and over fourteen times larger than the average monthly deficit in the first half of this year.  Exports slid 0.7% from June, non-energy imports rose 1.0%, and energy imports soared 11.9%.  In the second quarter of 2010, Canada’s current account has posted a deficit equal to 2.7% of GDP, up from 2.1% in 1Q10, and had exerted a drag of 2.9 percentage points on the 2.0% annualized rate of real GDP growth.  Third-quarter results figure to show a larger deficit exerting even more drag on economic growth.

British July trade figures released today were pretty awful and plainly discouraging.  The goods only and goods and services balances showed deficits of GBP 8.667 billion and GBP 4.916 billion, 15.1% and 25.0% wider than June outcomes.  Real merchandise imports advanced 2.7% in the latest month, while export volumes fell 0.9%.  Analysts had expected a goods and services deficit of GBP 3.7 billion compared to a monthly average gap of GBP 4.05 billion in the second quarter and GBP 3.15 billion in the first quarter.  The oil deficit was 2.3 times wider than in June. 

The German July current account surplus of EUR 9.0 billion, reported Wednesday, was 29% smaller than in June and 15% narrower than a year earlier.  Although down 1.5% on the month, seasonally adjusted merchandise exports in Germany were 20.4% greater than six months earlier, an annualized surge of 45%.  The EUR 12.4 billion goods surplus was a bit larger than the monthly average surplus of EUR 12.1 billion in the second quarter.  Strict wage discipline during the last decade greatly enhanced German competitiveness in world markets relative to its euro area partners.  Net exports accounted for slightly over a third of 9.0% annualized growth of German GDP in the second quarter and for a similar share of overall economic growth between 2Q09 and 2Q10.

Japan recorded a JPY 1.68 trillion current account surplus in July.  This was somewhat bigger than anticipated.  Net investment income accounted for 61% of this surplus, more than the share attributable to a goods trade surplus of JPY 916 billion.  Merchandise exports in Japan were 24.7% greater than in July 2009 versus on-year increases of 22.0% in U.S. exports and 18.7% in German exports.  According to preliminary figures, net exports augmented Japanese real GDP growth by 1.3 percentage points at an annualized rate last quarter.  Since GDP as a whole only went up 0.4%, all other sources of aggregate demand collectively exerted a 0.9 percentage point drag on the growth rate.  A revision of these data get reported on Friday, September 10.

Among other North American data reported today,  Canadian housing starts fell 3.1% in August, and house price slid 0.1%, trimming their on-year advance to 2.9% from 3.3% in June.  U.S. jobless insurance claims augmented the pleasant surprise of the trade figures by dropping 27K to 451K.  This series can be volatile from week to week, and the drop from a recent peak 504K in mid-August overstates the underlying trend.  That basic tendency is better captured in successive four-week moving averages of 460K last December 26, 456K over the four weeks to January 23, 474K on February 20, 453K on March 20, 460K on April 17, 454K on May 13, 464K on June 12, 455K on July 10, 474K on August 7, and 478K in the four weeks to September 4.  Viewed this way, one see no cumulating shift in 2010.  The U.S. job market remains very tight.  Layoffs are continuing at a surprisingly brisk pace this late into the recovery of GDP, and hires are not yet outstripping that pace of separations

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.

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