U.S. Trade Deficit Plunged in July on Rising Exports, Falling Imports


Aided by a jump in exports and an equally impressive fall in imports, the U.S. trade deficit unexpectedly shrank to $42.8 billion in July, the U.S. Commerce Department announced Thursday.

A Bloomberg survey had expected the trade deficit to fall to $46.8 billion in July from $49.8 billion in June. The measure totaled $41.8 billion in May.

July exports rose 1.8% to $153.3 billion, after a 1.3% decline in June. It was the highest export total since August 2008. Imports fell 2.1% to $196.1 billion, after a 1.3% increase in June.

Good News for Institutional Investors

Equally significant, nonoil imports -- which excludes the often-volatile energy component -- plunged 3% in July, after a 4.6% surge in June. That pushed the nonpetroleum deficit down to $33.2 billion in July from $39.7 billion in June.

Economists generally prefer that a nation run a trade surplus as opposed to a deficit because it usually implies that a nation's goods are competitive on the world stage, its citizens aren't consuming too much and that it's amassing capital for future investment.

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Institutional investors who say the key to the U.S. economy's success remains the industrial sector will be pleased by July's trade report because capital goods exports rose $2.3 billion, excluding vehicles.

However, the trade deficit's three-month moving average inched slightly higher, to $44.8 billion in July from $43.9 billion in June. Also, the July data total brought the 2010 trade deficit to $288.8 billion for the first seven months of 2010, up 41.6% from $204.0 billion for the same period a year ago.

In July, trade surpluses were recorded with Hong Kong at $1.8 billion, down from $2 billion in June; Singapore at $1.2 billion, up from $1 billion; Australia at $900 million, down from $1 billion; and Egypt at $400 million, up from $200 million.

Top U.S. trade deficits were recorded with China at $25.9 billion, down from $26.2 billion in June; European Union at $9.9 billion, up from $7.8 billion; OPEC at $8 billion, down from $8.9 billion; Mexico at $5.3 billion, down from $6.2 billion; Japan at $4.9 billion, down from $5.2 billion; and Germany at $3.6 billion, up from $3.1 billion.

Finding Buyers Abroad

July's trade report represents a shot-in-the-arm for the stock market's bulls because it shows that even though domestic U.S. consumer spending has been tepid and the housing sector still hasn't stabilized, the nation's products and services are finding buyers abroad. Exports remain a bright spot in the U.S. economic recovery, and provided that the uptrend is maintained, they'll continue to add to U.S. GDP.

Rising exports also generally lead to higher revenue and earnings for the U.S. multinational corporations -- and historically, as revenue and earnings go, so goes the U.S. stock market.