The US Bureau of Economic Analysis recently released the report for International Trade in Goods and Services. The findings show that in July the US had a trade deficit of $42 billion ($183.3 billion in exports vs. $225.3 billion in imports). This represents a deficit increase of $.1 billion, or about .25% over the adjusted numbers reported for the month of June. While the deficit did increase, it was still less than the analyst consensus of $44.3 billion.
Over the last several decades the US has operated with a trade deficit (also known as the trade gap). While a deficit is never good for the economy, the US economy is seen as improving when the deficit gets smaller, not necessarily being eliminated. Consistent movement toward a trade surplus is what indicates that the US economy is strengthening. A small increase in the deficit, as seen from June to July, is not as impacting as the large decrease that was seen from May to June ($48 billion to $42.9 billion, later adjusted to $41.9 billion, or about -10.5%).
How do the numbers for July stack up against those in recent years? If we look back to before the recession, the trade gap was actually much larger. 2006 – 2008 saw deficits between $60 and $70 billion. But as the world economy slowed down, the gap shrank quickly. Early in 2009 the deficit was nearing $20 billion. But as the economy starts to pick back up, the gap widened back to between $40 and $50 billion. You can see the trend in the charts here and here.
While the deficit in itself is not necessarily a bad thing, it is an indicator of the strength of the US Dollar. With a larger gap, the dollar is not as strong, but as that gap closes, the dollar gains favor against other currencies around the world.
Analyzing the report is not quite as simple as many of the other economic news releases. Whereas the new homes sales or the jobless claims reports are easy to look at and determine the movement of the economy, the International Trade report contains many more variables. There are influencing factors around the world, and while a smaller deficit means a better US economy, it can often mean a worse global economy.
The International Trade in Goods and Services report is issued once per month from the Bureau of Economic Analysis. It is held in high regard by economists and investors as a report on how the US is interacting with the rest of the economies around the world. The report can give indication as to where the best places to invest are, and give indication as to the trend in the strengthening or weakening of the US Dollar.