U.S. trade deficit narrows in September, but weak consumer goods imports pose downside risk to outlook

U.S. trade deficit narrowed in September, owing to weak imports. The nominal goods trade deficit narrowed sharply to USD 56.1 billion in September, as compared with projections of widening to USD 60.5 billion. In August, the deficit was at USD 59.2 billion. Nominal export grew strongly by 0.9 percent sequentially from 0.6 percent in August. Exports of capital goods, industrial supplies and other goods all recorded strong rises on the quarter.

Foods, beverages and feeds exports dropped 12.8 percent after a sharp decline in this category in the summer. On level terms, this category continues to be quite above its recent averages, even after September’s decline.

Meanwhile, imports dropped by around 1.1 percent sequentially, with weakness seen throughout categories. Capital goods, industrial supplies and consumer goods excluding autos saw major declines. Imports of autos and other goods increased in September. The advanced trade report also included preliminary data on wholesale inventories that increased modestly by 0.2 percent sequentially, noted Barclays.

Imports of consumer goods dropped significantly in 2016 and the series has yet to see any hints of a rebound as it dropped further by 1.8 percent in September. Household consumption is expected to grow strongly, supported by the recent rebound seen in autos imports; however, consumer goods imports is a downside risk to the outlook as the country sources the majority of its consumer goods abroad, according  to Barclays.

On the investment front, the strong drop in capital goods in September and the persistent negative annual readings in the past year show tepid demand for other business equipment and machinery.

“We now see downside risks to our expectation of a near-term rebound in investment and hence to our expectation that manufacturing output remains largely unchanged this year”, added Barclays.