Despite Narrowing Trade Gap, U.S. Trend Growth Shows Signs of Faltering

The U.S. trade balance improved in August broadly in line with market expectations. The trade gap narrowed to -US$59.1 billion following the prior month's -US$61.3 billion (revised from -US$62.2 billion), while the market was expecting a -US$59.0 reading. Excluding petroleum, however, the trade gap widened.

The improvement in the trade gap stemmed largely from a fall in petroleum as imports of crude oil fell 15.5% month-over-month. The price per barrel fell from US$124.7 in July to US$120.0 in August. Crude imports were also down on a volume basis falling to 308 million in August from 342 million in July.

The 2% fall in exports was dominated by a 13.8% fall in the automotive component, a 5.9% fall in consumer goods and a 3.2% fall in industrial supplies. Overall imports fell 2.4%, although ex-petroleum imports were up 0.9%. Automotive imports fell 6%, although pharmaceuticals, apparel and services were up 23.4%, 10.2% and 2.5%, respectively.

Excluding petroleum, the trade deficit actually widened to US$23.5 billion from the US$18.3 billion deficit recorded for July. The real goods deficit ex-petroleum similarly deteriorated to US$35.6 billion from the prior month's US$32.7 billion deficit.

The Fed's latest statement expressed the expectation that net exports would not be as supportive of growth as it has been in recent quarters. The deterioration of the ex-petroleum balance gives credence to that belief and is likely to reinforce the Fed's concern about faltering U.S. growth. We expect the Fed to cut rates by an additional 50 basis points to 1.00% by the end of this year.

RBC Financial Group
http://www.rbc.com

The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.