Exports Rise, Imports Fall, Cutting Trade Deficit

A rise in exports helped cut the nation's trade deficit to a lower-than-expected $39.5 billion in July, well down from a revised $44.7 billion in June. Exports rose 1.9 percent to $186.3 billion with strength centered, not this time in services which were flat, but in goods and especially, as indicated in last week's advance goods report, in agricultural products. Imports, which are a subtraction in the national accounts, fell 0.8 percent with this decline centered in consumer goods, a decline that hints at cautious business expectations for U.S. retail demand. Petroleum is not a major factor in the July report with the related gap at $5.0 billion vs June's $5.3 billion. Though the lack of import demand is a possible negative, this report marks a good start for net exports in the third-quarter GDP report where estimates are certain to rise.

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The nation's trade deficit is expected to narrow sharply in July, to a consensus $41.3 billion vs June's $44.5 billion. Advanced data on July goods trade showed a large increase in exports together with a sizable decrease in imports. Note that this will be an early reading for quarterly net exports and may lead to adjustments in third-quarter GDP estimates.