U.S. trade deficit narrows in July on falling imports, consumption to slow at sustainable pace in Q3

The nominal trade deficit in goods in the US narrowed more than projection in July. The trade deficit in goods reduced to USD 59.3 billion from 64.5 billion in July. Growth in nominal export rose sharply, accelerating to 2.4 percent month-on-month basis, as compared with the earlier month’s growth of 0.6 percent.

Exports’ most major categories rose strongly in July. On the contrary, however, growth of import weakened sharply in the month, declining 1.3 percent month-on-month, as compared with June’s growth of 2.1 percent.

Most major categories of imports dropped on the month. Imports of consumer goods and automotive vehicles dropped 2.3 percent month-on-month, after strong growth in the earlier three months. Capital goods imports dropped 1.2 percent sequentially.

Even if the trade data is volatile, the drop in capital goods imports and imports of autos and other consumer goods might indicate certain sluggishness in certain portions of the domestic economy. However, early signs of investment growth, particularly durable goods orders released last week, indicate towards a rise in equipment investment.

A small rise in investment is projected in the third quarter. Consumption growth is likely to decelerate to a more sustainable 2.5 percent in the third quarter from 4.4 percent in the second quarter, noted Barclays in a research report.

“Overall, and after adjusting for price changes, we now see softer Q2 import growth than previously expected. This, in turn, has boosted our Q2 GDP tracking estimate by one-tenth, to 2.4 percent”, added Barclays.