US good trade deficit narrows to 7-month low

The sharp reversal in the goods trade deficit to a seven-month low of $58.6bn in September, from $66.6bn, means that third-quarter GDP growth will be around 1.8%, higher than previous 1.5% estimate.

Nominal exports increased by 2.5% m/m in September, driven by gains in nearly every major category, including a particularly sizeable 11.5% m/m jump in consumer goods exports. At the same time, nominal imports declined by 2.6% m/m, more than reversing the big surge in August. Moreover, these nominal shifts will look even better in real terms because economists already know that export prices fell by 0.7% m/m last month, while import prices only declined by 0.1% m/m.

"The upshot is that our calculations now put third-quarter real export growth at 1.7% annualized and real import growth at 2.5%. Before today we had exports unchanged and imports growing by 4.5%. As a result, instead of subtracting 0.7% points from third-quarter GDP growth, it now appears that net external trade only subtracted 0.2% points", says Capital Economics in a research note.

Having seen September's durable goods figures yesterday, we're slightly more downbeat on business investment and inventories, so we aren't raising out GDP forecast by the full 0.5% points (i.e. the difference between -0.7% and -0.2%).

"We do now think that third-quarter GDP growth was 1.8% annualized rather than 1.5%. We still don't think that would be strong enough to convince the Fed to raise interest rates as soon as December, however, since it would still be below the economy's 2% potential growth rate", added Capital Economics.