Merk Investements: Trade Balance

The U.S. trade balance increased to -$62.198bln for the month of July. The 5.7% increase is the sharpest rise since April of 2008. Ex Petroleum, the deficit fell to -$18.806bln, down from -$33.308bln one year ago. The real dollar goods balance, which feeds into GDP, increased to -$41.241 vs. the -$40.149bln.

Total exports increased 3.3% for the month on the back of a 3.9% increases the export of goods. Inside the goods category, the 6.9% increase in computers accessories, 5.7% advance in civilian aircraft and 2.2% rise in demand for capital goods were the primary catalysts behind the increase. On a real dollar adjusted basis, exports rose 2.0% for the month.

Imports climbed 3.9% for the month; mostly due to a 4.3% increase in demand for goods and a 9.6% increase in demand for industrial supplies. Demand for consumer goods fell -0.2% and the automotive sector saw a -0.5% decline. On a real basis imports advanced 2.2% for the month.

The politically sensitive series of bilateral deficits saw deterioration across the board for the month. The trade deficit between the US and China increased to -$24.877bln, Japan -$6.328bln and the Pacific Rim overall to -$32.572bln. The deficit with the E.U. advanced to -$12.817bln and the OPEC countries to -$24.184bln.

The slowdown in the advanced industrial economies saw demand for goods produced in the US fall. The modest adjustment in the real dollar goods balance should see the final estimate of output for the second quarter revised down a touch. However, the real adjusted balance declined quarter over quarter and implies that the trade will continue to be a net positive to overall output going forward. While, the adjustment in the dollar will take a bit of the edge off of what has been undeniably the most positive story in the U.S. Even with the improvement in the fortunes of the dollar, the U.S. currency is still quite competitive and domestically oriented export firms should continue to do quite well.

This report was prepared by Merk Investments LLC, and reflects the current opinion of the author. It is based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any investment product, nor provide investment advice. Merk Investments does not own any of the stocks mentioned; this is not an offer to buy or sell any security mentioned.

Merk Investments: Trade Balance: July 2008