Econoday Report: International Trade 11, 2008

2008 U.S. Economic Events & Analysis

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International Trade

Definition
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 7/11/08 For May 2008

Trade Balance Level
Actual	$-59.8B
Consensus	$-62.1B
Consensus Range	$-64.4B to $-59.3B
Previous	$ -60.9 B

Highlights
The U.S. trade deficit in May surprisingly narrowed despite a huge run up in oil prices as exports outpaced imports. The overall U.S. trade gap narrowed to $59.8 billion from a revised $60.5 billion deficit in April and came in smaller than the market forecast for a $62.1 billion deficit. In May, exports continued upward with a healthy 0.9 percent gain while imports rose a moderate 0.3 percent. The oil gap actually shrank to $33.2 billion in May from $34.8 billion in the prior month, while the nonoil deficit widened to $38.0 billion from $35.8 billion in April. Not surprisingly, the average price of imported oil set another record high, reaching $106.21 per barrel in May from $96.81 per barrel in April. Strength in exports was led by industrial supplies. Import growth was slowed by a decline in automotive and in industrial supplies (which includes oil). Today's report shows that the international sector is supporting growth in the U.S. despite the spike in oil prices. Equities should like the numbers as well as the dollar.

Year-on-year, overall exports were up 17.8 percent in May while imports were up 12.5 percent.

Overall, today's report contains several themes. First, export growth remains healthy due to both a lower dollar and relatively strong economic growth abroad. On the import side, U.S. consumers have responded to higher oil prices by trying to cut back on gasoline purchases. But given further spikes in oil prices, the dollar value of oil imports is likely to rise in June and July. This morning, crude oil hit an intraday trading high of near $147 per barrel. Also, on imports, U.S. consumers appear to be cutting back on motor vehicle purchases as they choose between buying more gasoline efficient vehicles and not buying at all for now.

For now, the May data favor the dollar but that is not likely to last during the transition through higher oil prices.

Market Consensus Before Announcement
The U.S. international trade gap widened sharply in April - primarily due to a run up in oil prices. The overall U.S. trade gap widened to $60.9 billion from a $56.5 billion deficit in March. Exports rebounded a healthy 3.3 percent but imports surged 4.5 percent. While the oil gap jumped, the nonoil gap was little changed. The oil trade gap grew to $34.5 billion from $30.2 billion in March while the nonoil deficit was unchanged at $36.1 billion in April. The jump in the oil gap was due to a spike in oil prices to $96.81 per barrel from $89.85 in March. With the continuing increases in oil prices, we are likely to see a further boost in the trade gap in May.

International trade balance Consensus Forecast for May 08: -$62.1 billion
Range: -$64.4 billion to -$59.3 billion

Trends

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.

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.

Data Source: Haver Analytics | Consensus Data Source: Market News International and Thomson Financial

2008 Release Schedule

Released On: 1/11 2/14 3/11 4/10 5/9 6/10 7/11 8/12 9/11 10/10 11/13 12/11

Released For: Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct