U.S. advance goods trade deficit widens in July, likely to continue to widen in months ahead

U.S. advance goods trade deficit has widened in July on a sequential basis. The deficit rose to USD 72.2 billion from USD 67.9 billion, owing to a rise in imports and decline in exports. Total exports dropped 1.3 percent sequentially, driven by food, feeds & beverage category. Exports of food & feeds had risen sharply in the second quarter, driven mainly by soybean exports.

This trend was expected to be transitory and today’s report implies that was indeed the case, noted Barclays in a research report. Exports of capital goods, consumer goods and other goods also fell in July. On the imports side, total imports rose 0.9 percent sequentially, recording the third straight monthly rise. Most categories of imports rose in July, among them, capital goods, autos and industrial supplies. This augurs well for business investment. Meanwhile, imports of consumer goods dropped 1.3 percent.

“Altogether, we expect the trade deficit to continue to widen in the coming months as some of the transitory factors supporting exports fade away, and fiscal stimulus-led imports growth continues”, stated Barclays.

The wider-than-expected July trade deficit indicates to a larger drag from trade in the third quarter compared to what was factored-in. Meanwhile, higher imports of core goods bumped the estimate of equipment investment higher, while the inventories number boosted the inventory tracking.

In the meantime, the preliminary estimates for July wholesale and retail inventories were also released today. Wholesale inventories rose above expectations by 0.7 percent sequentially in July as compared with 0.1 percent rise recorded in June. Retail inventories rose 0.4 percent, slightly above expectations.

At 16:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was highly bearish at -122.702. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex