WASHINGTON -- U.S. exports took a hit from an ailing global economy in August and imports from China surged, fueling the largest expansion of America's trade deficit in five months.
The data released Tuesday by the Commerce Department illustrate the U.S. economy's vulnerabilities to a strong dollar and weak demand in foreign markets, which could impose further caution on the Federal Reserve's plans to hike interest rates.
The trade deficit swelled by 15.6 percent to $48.3 billion in August, according to data that is adjusted for seasonal factors.
The scope of the increase was accentuated by the unusually narrow trade deficit registered in July. Also, imports likely got a temporary boost from inflows of cellphones ahead of the release of Apple's new iPhone model.
%VIRTUAL-pullquote-Trade will remain a drag on the real economy until well into next year.%But the size of the trade gap has risen far above the average levels seen in recent years and the onus for stronger U.S. economic growth is now falling squarely on consumers.
"Trade will remain a drag on the real economy until well into next year," said Steve Murphy, an economist at Capital Economics.
Sales of U.S. goods and services abroad fell 2 percent to their lowest level since October 2012. Exports to Mexico fell by $1.5 billion in August and the European Union bought $500 million less from America than it did in July, according to data on bilateral trade which is not seasonally adjusted.
The declines are partly due to expectations of higher interest rates in the United States that have pushed the value of the dollar higher, reflecting the strength of America's economy relative to its trading partners. A stronger dollar makes U.S. goods less competitive abroad.
Weaker demand abroad is also playing a role, and U.S. Treasury Secretary Jack Lew will ask policymakers from other countries gathering in Lima, Peru this week to stimulate their economies to kick-start global growth.
Global Growth Worries
The International Monetary Fund cut its global growth forecasts for the second time this year on Tuesday, citing weak commodity prices and a slowdown in China while warning that policies aimed at increasing demand were needed.
A 3 percent increase in U.S. imports from China also factored into the widening of the trade deficit. China's yuan currency has depreciated sharply in recent months amid concerns of a possible crash in the Chinese economy, which is the second largest in the world after America's.
The widening of the U.S. trade deficit surpassed the $47.4 billion median forecast for the deficit in a Reuters poll of economists.
Yields on U.S. government debt initially declined after the report was released, before later turning higher as U.S. stock prices were little changed.
Until recently it appeared that the U.S. economy was largely shrugging off weakness abroad. But last week new data showed a sharp slowdown in employment growth in August and September. This has fueled doubts on Wall Street over Fed Chair Janet Yellen's assertion two weeks ago that the economy would be strong enough to warrant an interest rate hike this year.
Trades made in futures markets now imply that investors are betting the Fed will hold off on hikes until at least March.
In August, imports rose 1.2 percent, even though America bought the least petroleum from abroad since September 2004.
Imports of consumer goods rose by $4 billion, of which slightly more than half the rise was due to increased purchases of cell phones and other household goods.
9 Numbers That'll Tell You How the Economy's Really Doing
Trade Gap Widens as Exports Sag, Imports From China Surge
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.