U.S. trade deficit widens slightly in July, hurricane Harvey to add to volatility in months ahead

The U.S. international trade balance stayed widely unchanged in the month of July. The trade deficit widened a bit to USD 43.7 billion. Consensus expectations were for the deficit to have widened to USD 44.6 billion. Meanwhile, June’s data was revised slightly, with the trade deficit slightly smaller than previously reported. June’s data was revised to a deficit of USD 43.5 billion from USD 43.6 billion.

Following two months of gains, exports dropped 0.3 percent sequentially in July. Declines in automotive and consumer goods countered gains in food and beverage and capital goods. Services exports dropped 0.2 percent in July, the first monthly drop of 2017.

Imports fell for the third straight month in July, declining 0.2 percent sequentially. Drops in automotive and industrial supplies countered gains in food and beverage imports and capital goods. Service imports remained the same. Adjusting for price changes, export volumes dropped 0.6 percent, partly reversing gains in the last two months. The imports volume remained the same in July.

Trade deficits of the U.S. with its major trading partners shifted in composition in July, as the broadening in the trade deficit in dollar terms with Canada was more than countered by a narrowing of the trade deficit with Mexico. On a year-on-year basis, U.S. continues to keep the largest deficits with China, Europe and Mexico.

The trade report of U.S. erases some of the optimism on exports that the past two trade reports suggested for the third quarter. However, given a continuation of weak growth in import volumes, net trade is on track to contribute positively to economic activity for the third straight quarter. Robust global demand is possibly aiding in boosting foreign demand for U.S. goods, and a weaker U.S. dollar in trade-weighted terms should give some support in months ahead, stated TD Economics in a research report.

Hurricane Harvey is expected to contribute to volatility in trade statistics in months ahead, especially concerning petroleum imports and refinery exports. However, any trade-related effects are expected to be contained to the third quarter, stated TD Economics.

At 16:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was highly bearish at -117.395. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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