Merk Investments: June Trade Balance
The trade balance in June saw a solid decline on the back of the most recent nadir in the value of the dollar, which permitted the volume of exports to offset the record increase in demand for petroleum. On a nominal basis the deficit declined -4.1% and the total balance settled in at -$56.772bln, below the series three months average of -$58.825bln.
Adjusted for inflation the real balance declined to -$39.064bln vs. the -$43.529bln recorded previously. On a real basis total exports advanced 4.0% and total imports declined -0.6% Total exports increased 4.0% for the month on the back of a 5.1% increase in goods, 8.1% increase in industrial goods, 5.4% in consumer goods and 5.6% increase in demand for automotive goods. Imports for the month increased 1.8%. Demand for capital goods from abroad rose 2.0%, industrial supplies increased 8.3%, while consumer goods fell -1.4%.
The politically sensitive series of regional and bilateral trade balances did not see much improvement. Overall the balance with the EU deteriorated a bit in June with the deficit increasing to -$10.716bln and the shortfall with Pacific Rim countries saw a modest increase to -$26.596bln vs. the -$26.568bln recorded in May. The deficit with the OPEC countries increased to -$18.098bln. The deficit with China increased to -$21.430bln, while the deficit with Japan rose to -$6.127bln. The oil driven deficit with Canada increased to -$7.163bln.
The surprise increase in demand for US goods and services will provide a direct boost to Q2 GDP. We have increased our provisional estimate of output in the second quarter to 2.5% on the back of the move in trade. The trade numbers in June are unambiguously positive and are a reflection of a weak dollar that was perfectly captured during the sampling period. The major question is can this continue? Given the recent rise in the value of the dollar and the visible slowdown in the EU and Japanese economies we expect to see the trade data in the fall begin to provide a little less support to overall growth. If the data in the EU arrives in the negative fashion that the market expects, support for overall output from the external sector may have reached a peak in the Q2 2008.
Joseph Brusuelas
Merk Investments
Chief Economist/VP Global Strategy
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