Trade Deficit Widens

Whether tariff effects are in play is uncertain. What is certain, at least for third-quarter GDP, is that the deficit in net exports is deepening at a substantial rate. The nation's trade deficit widened to $53.2 billion in August with July at $50.0 billion. This compares with a monthly average of $44.6 billion in the second quarter which spells big trouble for net exports in the third-quarter GDP report.

Exports are in reverse, falling 0.8 percent in August after a 1.0 percent drop in July. The export of services, which is the nation's strength and which seems to be dodging any trade-war fire, rose 0.3 percent to $70.5 billion in August. Exports of goods, in contrast, fell 1.4 percent to $138.9 billion following July's 1.6 percent plunge. The weakness in goods is centered in agricultural products, down $1.2 billion in the month to $12.0 billion with industrial supplies also noticeably weak, down $2.4 billion to $44.1 billion.

On the import side of the report, they rose 0.6 percent to deepen the deficit with gains centered in vehicles which rose $1.0 billion to $31.7 billion. Imported consumer goods, which are the nation's big trouble spot, rose $0.9 billion to $53.5 billion.

Country data show a deepening imbalance with China, at $38.6 billion vs July's $36.8 billion with the deficit with Mexico widening to $8.7 billion vs $5.5 billion in July. The deficit with Canada narrowed noticeably to $2.7 billion as did the deficit with the EU at $15.7 billion. The deficit with Japan deepened sharply in the month to $6.0 billion from August's $5.5 billion.

Tariffs are an unfolding controversy which cloud the results for August. Not clouded at all, however, is the effect of net exports on third-quarter GDP which is substantially negative. But third-quarter GDP looks to get a favorable lift from welcome inventory growth and, perhaps, from consumer spending. Still the cross-border diagnosis in the third quarter, with one month still to go, looks to be clearly unfavorable.