As Exports Fall, Focus Is Back On Consumers For Economic Growth

by: Bondsquawk, CFA

By Rom Badilla

The U.S. trade deficit inched higher in amid slumping global demand. According to the U.S Department of Commerce, the U.S. trade balance widened slightly to -$42.0 billion in July from the revised prior period reading of -$41.9 billion. The July figure widened less than market expectations since the median of forecasts by economists was at -$44.0 billion.

On an inflation-adjusted basis, the trade deficit was more pronounced. The trade goods balance worsened to -$46.5 billion from June's print of -$44.0 billion.

Despite the sideways action in the headline number, both imports and exports fell. Imports came in at $225.3 billion, a decline of 0.8% which marks the fourth straight monthly decline. More importantly, exports dropped 1% for the month to $183.3 billion which is a reversal after rising in three of the past four months.

Having said this, the fall in exports adds to the current trend that growth for U.S. goods are turning downward, which is not a good sign for the economy. Given that, global growth is slipping- as evident by the recent weak economic figures from both in China and in Europe.

Deutsche Bank's Chief Economist, Joseph LaVorgna wrote the implications of today's data release on U.S. economic growth going forward. In Deutsche Bank's latest U.S. Data Flash, LaVorgna provided the following:

Overall exports of goods and services are decelerating rapidly; they grew 2.8% year-on-year as of July, compared to 6.9% in Q1 and 5.2% in Q2. Thus, today's trade figures confirm our expectation that exports will no longer be a major engine of growth, as they have been to this point in the economic cycle. The near to medium term economic outlook will therefore depend on an orderly transition to domestic drivers of growth, such as consumer spending, business investment and housing.

With export growth becoming less of a factor, other drivers will need to step up in order have continued economic growth. While employment gains have been lackluster, as evident by last Friday's jobs data, consumer spending has been somewhat resilient as of late because of the decline in energy costs, which in turn provided additional cash on hand to spend elsewhere. Energy prices have since rebounded, which should hurt people's wallets. But it remains to be seen if the higher costs will translate into lower consumer spending. Hence, all eyes will be on Friday's Retail Sales report for clues to determine the health of the consumer and the direction of the U.S. economy.

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