US Trade Deficit Plunges To $34.2 Billion, Lowest Since October 2009; Highest Exports On Record

If there was any doubt that the taper would take place shortly, it can be wiped out following the just released June international trade data, which showed a surge in exports to a record high $191.2 billion, an increase of $4.1 billion compared to May, even as imports declined by $5.8 billion to $225.4 billion, resulting in a trade deficit of just $34.2 billion, or 22.5% lower compared to the $44.1 billion in May, which is the lowest trade deficit since October 2009.  It is also the biggest beat to expectations of -$43.5 billion since March 2005. Whether this plunge in the deficit was the result of the new GDP methodology is unknown, however the resulting surge in revised Q2 GDP following this bean-counting addition to the last month of Q2, means that the economy grew even more than expected and that the Fed's tapering course is now assured. It also means Q3 GDP based on July trade data will be dragged down as there is no way this surge in the collapsing deficit can be sustained.

Breaking down the data:

  • The May to June increase in exports of goods reflected increases in industrial supplies and materials ($1.5 billion); capital goods ($1.5 billion); consumer goods ($1.0 billion); foods, feeds, and beverages ($0.3 billion); and other goods ($0.3 billion). A decrease occurred in automotive vehicles, parts, and engines ($0.4 billion).
  • The May to June decrease in imports of goods reflected decreases in industrial supplies and materials ($2.5 billion); consumer goods ($1.6 billion); other goods ($1.2 billion); foods, feeds, and beverages ($0.4 billion); and automotive vehicles, parts, and engines ($0.3 billion). Capital goods were virtually unchanged.
  • Exports of services increased $0.1 billion from May to June. The increase was mostly accounted for by an increase in travel ($0.1 billion). Changes in the other categories of services exports were relatively small.
  • Imports of services were virtually unchanged from May to June. A decrease in other transportation ($0.1 billion), which includes freight and port services, was mostly offset by increases of less than $0.1 billion in several categories.

Trade as broken down by key trading partners:

  • The June figures show surpluses, in billions of dollars, with Hong Kong $3.4 ($3.0 for May), Australia $1.7 ($1.4), Brazil $1.6 ($0.9), and Singapore $1.2 ($1.2). Deficits were recorded, in billions of dollars, with China $26.6 ($27.9), European Union $7.1 ($10.8), OPEC $5.8 ($6.3), Japan $5.5 ($5.4), Germany $4.9 ($5.8), Mexico $4.8 ($5.3), Saudi Arabia $3.0 ($2.7), Korea $1.6 ($2.5), Canada $1.6 ($1.9), Ireland $1.4 ($2.3), Venezuela $1.2 ($1.5), and India $1.0 ($2.3).

And since trade still happens to be zero sum (even if facilitated by fluctuating FX regimes), the plunge in US deficit means a decrease in relative net exports by both China and the EU to the US in June, and thus a decline in their Q2 GDPs.