U.S. Trade Balance (July 2015)

The U.S. trade deficit fell to a five-month low of $41.9 billion in July, close to the norm of the past three years. Plunging oil prices cut into imports (-1.1%), but volumes also fell on a surprising (and likely temporary) pullback in consumer goods. Meantime, exports rebounded 0.4% (and 0.9% in real terms), but remain below year-earlier levels due to the mighty dollar.

The real goods balance improved by nearly $3 billion. However, exports are likely to retrace lower in coming months, while a strong dollar and fast-growing domestic demand should keep imports pointing higher. While the better trade data suggest some upside risk to Q3 growth, a likely deterioration in the trade balance will temper the economy's expansion in the year ahead, keeping growth in the 2.6% range this year and next.

"An improved trade balance suggests some upside risk to our Q3 GDP growth estimate (2.8%), though it's early days in the quarter and trade will likely remain the economy's biggest hurdle in the year ahead",says BMO Economics.