* The August 2013 merchandise trade deficit unexpectedly deteriorated to $1.3 billion from an upwardly revised deficit in July of $1.2 billion (originally $0.9 billion).
* The deterioration occurred despite exports rising $0.7 billion (1.8%) as it was more than offset by imports rising $0.8 billion (2.1%).
* On a volumes basis (using 2007 chained dollars), the trade picture was very similar with a 1.5% gain in exports being outpaced by a 1.7% rise in imports sending the real net exports deficit up to $1.6 billion from an upwardly revised deficit in July of $1.5 billion.
* Both the larger than expected August deficit and the revised, and larger, shortfall in July, suggest that net exports will weigh on growth in the third quarter of 2013 possibly subtracting a percentage point from annualized growth rather than providing a modest addition. Such would suggest some downside risk to our current third-quarter 2013 growth rate of 2.8%. It is often the case that rising imports will be reflected in greater strength elsewhere in the economy such as business investment in M&E and/or inventories that can provide an offset.
The August 2013 merchandise trade report showed an unexpected deterioration in the deficit to $1.3 billion from $1.2 billion in July, which was revised higher from a previously estimated deficit of $0.9 billion. Market expectations going into the report had been for an August deficit of $0.7 billion.
The deterioration resulted from imports rising a greater than expected $0.8 billion (2.1%). This increase was led by higher imports of energy products ($0.4 billion or 12.5%), aircraft ($0.3 billion or 27.1%), motor vehicles ($0.1 billion or 1.9%), and machinery and equipment ($0.1 billion or 2.5%). The increase in M&E imports augurs well for greater strength in business investment in the third quarter.
The gain in imports was almost fully offset by exports rising $0.7 billion (1.8%). The increase in this component was led by higher exports of energy products ($0.4 billion or 4.7%), and metal and non-metallic mineral products ($0.3 billion or 8.2%).
On a volumes basis (using 2007 chained dollars), the trade picture was very similar with a 1.5% gain in exports being outpaced by a 1.7% rise in imports sending the real net exports deficit up to $1.6 billion from $1.5 billion in July; however, the deficit in July was revised higher from a previously estimated $1.0 billion as a result of both import growth being revised up to 1.4% from 1.0% previously and the decline in exports being deepened to 2.9% from 1.2% previously.
Both the larger than expected August deficit and the revised, and larger, shortfall in July, suggest that net exports will weigh on growth in the third quarter possibly subtracting a percentage point from annualized growth rather than providing a modest add. Such would suggest some downside risk to our current third-quarter 2013 growth rate of 2.8%. It is often the case that rising imports will be reflected in greater strength elsewhere in the economy such as business investment in M&E and/or inventories that can provide an offset. Confirmation of this strength awaits the release of the monthly gross domestic product (GDP) data. Our current forecast assumes a 0.3% rise in August GDP following the 0.6% gain in July.
RBC