Encouraging News Surfaces on Trade Gap

The trade deficit narrowed sharply to $43.1 billion in September – the lowest trade deficit in 2011.

According to IHS Global Insights, exports rebounded more vigorously than imports, aided by demand for industrial supplies and consumer goods.

“These findings are generally reassuring,” said Gregory Daco, principal U.S. economist for IHS. “But it may also indicate that U.S. retailers have ordered fewer goods and will be keeping lean inventories.”

Indeed, Daco said that a closer look shows that non-monetary gold (not included in the GDP calculations) was the single largest contributor to the industrial supplies export jump.

“Excluding this category, industrial supplies fell 0.5 percent, and the total export gain would have been halved,” he said.

Imports posted a small 0.3 percent uptick in September, as both petroleum and nonpetroleum imports rose. Strong increases in industrial supplies and automotive goods were partly offset by declines in capital and consumer goods.

Looking into the details, said economists, the pullback in capital goods imports was led by declines in computers, computer accessories, and telecommunication equipment.

IHS said this decrease in capital goods would have been worse if not for a 65.8 percent jump in civilian aircraft (a volatile category). Within consumer goods, apparel and pharmaceuticals fell 2.9 percent. Excluding the volatile pharmaceuticals category, traditional consumer goods imports rose a bleak 0.1 percent.

Since September and October import data typically include orders for holiday sales, this report is in line with our expectation of a modest holiday season.

Overall, IHS Global Insight expects the foreign trade contribution to real GDP growth in the third quarter to be revised to 0.6 percentage points from 0.2 percentage points. In theory, this would increase real GDP growth above its initial 2.5 percent estimate, but offsets from yesterday’s wholesale inventories data should bring growth down to 2.2 percent for the third quarter.

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