INDICATOR: July Trade Deficit/August Help Wanted Online
KEY DATA: Deficit: $39.1 billion ($4.6 billion wider); Exports: down 0.6%; Imports: up 1.6%/Help Wanted Online: up 1.8%
IN A NUTSHELL: "It doesn't look as if trade will help growth this quarter."
WHAT IT MEANS: One reason growth during the spring was revised upward was a huge drop in the trade deficit in June. That sharp narrowing not only was a surprise but it may have been an aberration. Rising imports and moderating exports unwound most of the June improvement and we are back to where we had been during the spring. Indeed, if you adjust for inflation, the goods trade deficit in July was pretty much what the deficit averaged during the second quarter. Petroleum was a major, but not only, reason for the widening in the deficit as both prices and demand increased. Looking at the details of the report, you would think that households are out there buying like crazy. Imports of consumer goods, food and vehicles rose solidly. On the business side, however, U.S. purchases of capital goods and non-petroleum related industrial supplies were down. As for exports, our overseas sales of consumer and capital goods as well as vehicles were off. We did sell more food and industrial supplies. As for where across the world our deficits are widening, all you have to do is look at Europe and China. The deficits soared as those areas are looking to improve their economies by exporting as much as possible to the U.S. Meanwhile, our sales to Europe and China fell.
With the August jobs numbers coming out in two days and my being out on the limb expecting it to be really good, it was nice to see that the Conference Board's measure of online job openings jumped in August. Most large states and metropolitan areas showed gains. So far this year, job vacancies advertised online are up nearly 5% compared to the 2012 average. That jibes with the declining weekly layoff numbers.
MARKETS AND FED POLICY IMPLICATIONS: The sharp widening in the trade deficit was hardly a surprise as few economists believed the July number would be sustained. The U.S. economy is still better than most other industrialized nations and thus we become a dumping ground for those trying to accelerate their economies. While declining dependence on energy is helping and should continue to do so, we need a European rebound if our exports are to really improve. That could be a while. Initial signs are that August vehicle sales were robust and that reinforces the view that the economy is continuing to grow at a moderate pace. That should buoy investors who are watching the Syrian situation warily. Oil prices, as usual, are pricing in what will likely be another non-supply event but let's not let facts get in the way of a good run up in prices. Oil prices surge whenever there is some geopolitical risk that could disrupt supplies. But those disruptions almost never appeared over the past twenty years so all we have had were higher prices and a redistribution of income from consumers to energy businesses. The reduction in spendable income due to higher energy costs, in conjunction with flat wages, means we should expect non-vehicle retail sales to be weak. But it is an employment Friday week so investors will likely wait two more days before making any big bets.