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US Trade Deficit Balloons in August on Dollar Strength

Posted by Joseph Trevisani on Oct 6, 2015 4:00:00 PM

The U.S. trade gap widened by the most in five months as exports stumbled, limited by a strong dollar and weak foreign growth, and a relatively healthy U.S economy continued to draw in consumer purchases.

The goods and services deficit increased 15.6 percent in August to $48.3 billion from July's revised $41.8 billion as both sides of the equation reversed direction from the prior month, according to information from the Commerce Department on Tuesday.

Exports fell 2.0 percent to $185.09 billion after gaining 0.6 percent in July and imports rose 1.2 percent to $233.42 billion following July's 1.0 percent decline.  The median forecast in the Bloomberg survey was for a deficit of $48.0 billion. 

This year has seen the dollar surge to its strongest showing in twelve years. The so called broad dollar, a trade weighted index of the currency compiled by the Federal Reserve has averaged 116.17 so far this year, the best showing for the greenback since it registered 119.23 in 2003. The rising dollar makes U.S goods and services more expensive for overseas purchasers and has led to declines in exports in five of eight months reported so far this year.

An expensive dollar has been paired with softening economic growth in many overseas markets for high value U.S. goods.

The International Monetary Fund cuts its estimate for global economic growth for the fourth time in a year on Tuesday. The IMF now expects world GDP to be 3.1 percent this year, 0.3 percent below the 3.4 in 2014 and 0.2 percent less than the IMF's own projection in July.  

In addition, the robust dollar has, along with decreasing demand and overproduction hammered commodity prices reducing the value of U.S raw material and resource exports. The Bloomberg commodity index touched its lowest level in over 15 years in September.

Exports have receded from last October’s record of $197.8 billion. The ten month decline reflects decreases in the value of industrial goods and raw materials including oil, plastics and metals. Shipments of consumer goods have also fallen. 

Finally, Americans have continued to purchase foreign goods. Imports of consumer items rose $4 billion in August. More than half the advance came from mobile phones, which, even if they are the products of U.S. companies are often made overseas.  Imports of capital goods rose $1.1 billion. 

Even after eliminating the effect of prices, the trade deficit climbed to $63.4 billion in August, and a five moth high, from $56.1 billion in July. 

The deficit with China rose to $32.9 billion in August from $28.8 billion in July. Exports to the mainland decreased by $0.6 billion to $9.8 billion while imports increased $3.6 billion to $42.8 billion.

The deficit with the European Union climbed to $14.5 billion in August from $12.4 billion in July.  Exports fell $0.7 billion to $21.7 billion and imports increased $1.4 billion to $36.2 billion

The deficit with Saudi Arabia dropped from $0.5 billion in July to less than $0.1 billion in August as the U.S. domestic oil production reached an all-time high. Exports increased less than $0.1 billion to $1.8 billion and imports slumped $0.4 billion to $1.8 billion.

 

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg

trade oct 6

broad usd oct 6

bcom oct 6

 

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