The international trade balance measures the difference between imports and exports of both tangible goods and services. Imports may act as a drag on domestic growth and they may also increase competitive pressures on domestic producers. Exports boost domestic production. Why Investors Care
| Released on 3/11/08 For Jan 2008 | ||||||||||||
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Highlights
The lower dollar may be wreaking havoc with import prices, but it clearly is supporting the international trade sector, the one piece of the U.S. economy that is still in healthy shape. The overall U.S. trade gap was nudged up by higher oil prices to $58.2 billion from a revised $57.9 billion gap in December. Importantly, the nonoil gap shrank notably, helped not just by higher exports but also by lower nonoil imports. The January trade deficit was narrower than the consensus forecast for a $59.5 billion figure and compares with the initial estimate for December of $58.8 billion.
The nonoil trade gap continued its recent narrowing trend, slipping to $32.1 billion in January from $34.8 billion the month before. Today's numbers are good news for the U.S. economy as exports are providing some support and imports are fading outside of oil. For now, however, the better-than expected trade gap will likely support the dollar, while equities should also look on the numbers favorably.
The petroleum balance, however, did worsen on higher oil prices, growing to $35.1 billion from $31.4 billion in December. January's figure was a record high for oil imports. The average price for a barrel of imported oil rose to $84.09 in January from $82.76 the month before.
By end-use category, exports were led by industrial supplies; foods, feeds, & beverages; and consumer goods. Capital goods exports declined but followed an extremely strong December. On the import side, consumer goods fell sharply in January and for the second month in a row. Also declining were capital goods and "other." Showing gains were industrial supplies; food, feeds, & beverages; and autos. A weaker consumer sector in the U.S. clearly is being reflected in the softening in consumer imports.
But the trade report may be overshadowed by news this morning from the Fed that it is expanding "Term Facilities Lending" to U.S. primary dealers for the first time and will be accepting AAA prime mortgages as collateral. These and other features of the expansion of this program should improve liquidity in the financial markets, including the mortgage markets. This announcement will likely support equities, damp interest rates, and possibly firm the dollar due to increased confidence in the markets.
The U.S. international trade gap has shown improvement despite a spike in oil prices, and the lower trade gap is providing some support for economic growth in the U.S. The nation's trade deficit narrowed sizably in December, to $58.8 billion from November's $63.1 billion. But the data largely reflect a softening in imports which declined 1.1 percent and reflected softening domestic demand especially for imported cars. Exports strengthened, rising 1.5 percent and reflected strong global demand for capital goods. For January, we may see higher oil prices reverse the trade gap somewhat but the underlying trend in a shrinking nonpetroleum gap should continue.
International trade balance Consensus Forecast for January 08: -$59.5 billion
Range: -$61.5 billion to -$57.7 billion
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Exports grow when foreign economies are strong. The weaker the foreign exchange value of the dollar, the less expensive goods and services are to foreigners, and this also helps spurt export activity. Imports grow when U.S. economic growth is robust. Imports are also spurred by a strong foreign exchange value of the dollar. |
![[Chart]](chart_1.gif)
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The international trade balance has posted a deficit almost continuously since the 1980s. Any trade deficit is a drag on U.S. GDP growth, but a smaller deficit adds to growth, while a larger deficit decreases GDP growth. |
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