US trade deficit narrows, ADP solid

The sharp reversal in the trade deficit, to $40.8bn in September, from a revised $48.0bn in August, was largely as expected based on the advance goods trade figures released last week. The narrowing already been incorporated into the BEA's advance third-quarter GDP estimate.

Exports rose by 1.6% m/m in September, with the gains fairly broad based accross most major categories. Consumer goods exports rose 8.1% m/m but that was largely a function of the big declines over the prior two months. Food and beverage exports also contributed to the rise, increasing 3.7% m/m.

"We expect the September rebound in exports to be short lived, however. Indeed, the export component of the ISM manufacturing index, which stood at 47 in October, suggests that real exports will remain subdued into next year", says Capital Economics in a research note.

Imports fell by 1.8% m/m in September, after the big surge a month earlier, with the decline driven by a 4.0% m/m decline in industrial supplies and a 0.9% m/m decline in consumer goods. The latter was no big surprise since about half of the big surge a month earlier reflected cell phone imports in advance of the release of the iPhone 6s on September 24th. 

Elsewhere, The ADP payroll survey suggests that private sector employment increased by a solid 182,000 in October, down only slightly from an estimated 190,000 gain in September. The problem is that the ADP proved to be hopelessly over-optimistic in September. (It originally put September's gain as high as 200,000, whereas the official non-farm payroll (NFP) figures show a gain of only 118,000.)

"Our own econometric model implies that NFP increased by a reassuring 200,000 in October but, like the ADP, the model was far too over-optimistic in August and September. The upshot is that, while everything seems to point to a solid gain in NFP employment in October, the same could be said of the past couple of months too, only for the actual figures to come in well below expectations. Under the circumstances, the risks to our 200,000 NFP forecast (data due for release this Friday) are clearly skewed to the downside", added Capital Economics.