The U.S. trade balance deficit tightened by $1.2 billion to $30.7 billion in August. The drop in the deficit was unexpected as the consensus forecast the deficit to rise to $33.0 billion.
The drop in the deficit was not necessarily good news for the U.S. economy as it shows the U.S. consumer is still holding back on increasing their spending.
The depreciation of the dollar against all major currencies was expected to help U.S. export growth. We saw evidence confirming that a low dollar value would boost exports in 2007 Q4 and 2008 Q2.
Unfortunately, global demand for U.S. goods remains extremely weak and the relative price gain for U.S. importers was not enough to spur an increase in purchases.
As a result, exports remained virtually flat in August. The entire tightening in the trade balance was due to a decline in import demand.
The drop in imports was unexpected. The latest wholesale and retail sales reports suggested the consumer was rebounding and beginning to make more purchases. The decline in imports confirms the opposite is true as the consumer remains in a state of limited consumption.
The lack of correlation between the sales reports and imports is strange. Auto sales came in as expected as the Cash for Clunkers stimulus program boosted demand for imported vehicles by $1.2 billion. However, petroleum imports posted a massive decline of $1.2 billion which does not correlate at all with gasoline purchases.
Imports also decreased in industrial supplies and materials ($1.0 billion); consumer goods ($0.7 billion); other goods ($0.4 billion); and foods, feeds, and beverages ($0.1 billion).
Exports saw a decline in capital goods ($1.3 billion) and consumer goods ($0.1 billion). Export demand increased for industrial supplies and materials ($0.9 billion); automotive vehicles, parts and engines ($0.5 billion); and foods, feeds, and beverages ($0.1 billion).
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