Real Trade Deficit Improves Further Despite Flat Headline

Petroleum imports plunged more than $7 billion in August due largely to the sharp drop in energy prices. Unfortunately, exports also declined. Despite the unchanged headline deficit, the decline in the real trade deficit will help to prop up real GDP growth in the third quarter.

Nominal Trade Deficit Unchanged, But Real Deficit Lower

• Total exports fell $3.4 billion in August as most categories of goods exports fell. One month does not make a trend, but exports will weaken due to slower growth in the rest of the world.
• The only bright spot was the $827 million rise in capital goods exports.

Net Exports Will Help To Prop Up Q3 GDP

• The $7.3 billion drop in petroleum imports accounted for most of the decline in overall imports. Total imports will remain weak going forward due to falling energy prices and depressed U.S. economic growth.
• Real net exports will probably make a positive contribution to Q3 real GDP growth worth at least one full percentage point.

Wachovia Corporation
http://www.wachovia.com

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