U.S. goods trade deficit narrows in August, manufacturing unlikely to decline significantly in 2016

The nominal merchandise goods trade deficit of the U.S. narrowed a bit in August from July, against market projections of a widening of the deficit. The goods trade deficit declined to USD 58.4 billion from USD 58.8 billion and as compared with the consensus expectations of a USD 62.5 billion deficit. Exports, in nominal terms grew strongly by 1.5 percent in sequential terms, as compared with the 2.1 percent growth seen in July.

Most of the major categories of exports rose strongly in August. Beverages, foods and feeds dropped 1.5 percent after last month’s sharp rise of 32 percent. On the contrary, imports grew modestly by 0.5 percent in sequential terms. It recovered from its subdued print in July, but continues to remain below the trend seen earlier in 2016.

Consumer goods and automotive vehicles imports remained flat in August after dropped 1.9 percent in the previous month. As an optimistic sign for investment on the quarter, capital goods imports increased 2 percent month-on-month, noted Barclays in a research note. The advanced trade report also included the preliminary data about wholesale inventories. It showed that the inventories dropped modestly by 0.1 percent sequentially and that the July print was revised down.

In all, the U.S. trade data report is in line with stable growth in the economy. The subdued consumer goods imports indicate towards certain weakening of consumption in the third quarter, with this softness countered by the increase in capital goods imports. The strength in exports strengthens the view that manufacturing sector is not expected to drop significantly in 2016, according to Barclays. Manufacturing sector is likely to see sideways movement in 2016.

“Our Q3 GDP tracker moved higher to 2.6 percent from 2.4 percent following solid exports data for the month, which offset the small downside news on inventories”, added Barclays.