Imports Drop, Exports Rise

Net exports open the third quarter favorably as a $72.3 billion goods deficit in July is lower than expected and nearly $2 billion lower than June. Exports rose a welcome 0.7 percent in the month to $137.3 billion with imports down 0.4 percent to $209.7 billion.

Looking at details, exports of foods, feeds & beverages were very weak once again, down 2.4 percent in the month for 2.2 percent year-on-year contraction. Exports of industrial supplies, reflecting soft oil prices, also contracted sharply. Yet elsewhere, exports in July were strong led by consumer goods as well as autos and including a strong gain for capital goods.

Imports show a sharp drop for capital goods in what is an unfavorable indication for domestic business investment. Imports of foods rose as did autos and also consumer goods which, at $55.3 billion for this component alone, are the central weakness of the economy's trade data.

Yet with the notable exception of the drop in food exports, this report is mostly solid especially the overall gain for exports. With inventories lean and consumer spending holding up, improvement in exports could spell a solid third quarter for the US economy. Note that bilateral country breakdowns are not available with the advance release but will be included in next week's international trade report.