This Morning the U.S. Census Bureau reported on November 2017 advance statistics for international trade, wholesale inventories, and retail inventories. The details of each are as follows:
Advance International Trade in Goods
The international trade deficit was $69.7 billion in November, up $1.6 billion from $68.1 billion in October. Exports of goods for November were $133.7 billion, $3.8 billion more than October exports. Imports of goods for November were $203.4 billion, $5.4 billion more than October imports.
Advance Wholesale Inventories
Wholesale inventories for November, adjusted for seasonal variations but not for price changes, were estimated at an end-of-month level of $610.2 billion, up 0.7 percent (±0.4 percent) from October 2017, and were up 3.8 percent (±0.7 percent) from November 2016. The September 2017 to October 2017 percentage change was revised from down 0.5 percent (±0.4 percent) to down 0.4 percent (±0.4 percent)*.
Advance Retail Inventories
Retail inventories for November, adjusted for seasonal variations but not for price changes, were estimated at an end-of-month level of $619.1 billion, up 0.1 percent (±0.2 percent)* from October 2017, and were up 1.9 percent (±0.5 percent) from November 2016. The September 2017 to October 2017 percentage change was unrevised at virtually unchanged (±0.2 percent)*.
Exhibit 1. U.S. International Trade in Goods and Services
Exhibit 2. U.S. International Trade in Goods and Services—Three-Month Moving Averages
Market Sensitivity: Medium.
What Is It: A monthly report on U.S. exports and imports of goods and services.
Most Current News Release on the Internet:www.bea.gov/newsreleases/international/trade/tradnewsrelease.htm
Home Web Address: www.bea.gov
Release Time: 8:30 a.m. (ET); data is released the second week of the month and refers to trade that occurred two months earlier.
Source: Census Bureau and Bureau of Economic Analysis, Department of Commerce.
Revisions: Each release comes with revisions that go back several months to reflect more complete information. Changes are usually small in magnitude, though they can be sizable at times. The annual benchmark revisions normally come out in June and can span several years.
Bernard Baumohl. The Secrets of Economic Indicators
Financial-market reaction to the monthly trade data is tough to predict. Everyone recognizes the growing importance of international commerce to the U.S. economy and how flows of imports and exports can tip off investors to domestic demand, industry earnings, pricing power, and potential changes in currency values. What lessens the value of the international trade report is its late arrival. The trade balance is the last economic release by the Census Bureau each month, and it reports on activity that took place two months back. So it’s hard to get worked up when this report comes out. One factor that might provoke a sharp reaction is if the trade numbers significantly diverge from what the market or policymakers expected that month. Sudden changes in export or import flows could have implications for GDP growth estimates and the dollar, and that could startle market participants.
Anticipating how bond investors might respond to trade data can be very tricky. There’s no consistent pattern of response because much depends on the factors behind the latest trade news. Let’s take a look at a sample of the scenarios investors might face.
If the monthly trade deficit turns out to be smaller than expected, this could be viewed as good news for fixed incomes. The reason? The dollar often rallies in such cases because foreign investors prefer to see the U.S. trade gap shrink. A stronger dollar will help reduce inflation pressures in the U.S., and this can lift bond prices.
Note, however, that the same report can also be viewed negatively by bondholders, because a shrinking deficit can boost GDP growth. Greater exports or fewer imports—both of which can reduce the red ink in trade—means that less is subtracted from the GDP account. If the cause is a surge in exports, this will further pump up the U.S. economy, and that can unnerve fixed-income investors and lead to a sell-off in bonds. On the other hand, if the reason for the smaller deficit turns out to be a drop in imports, it suggests that the U.S. economy might be weakening. This is considered good news for bond investors.
Now suppose that the trade deficit suddenly balloons. You might conclude that is bad news for bond investors. After all, this would normally put downward pressure on the dollar, which might raise both inflation and interest rates in the U.S. An increase in the trade shortfall means that the U.S., which is already the world’s largest debtor nation, will have to borrow even more money from foreign investors to finance these additional deficits. Ah, but there might also be good news here for bonds. A higher trade deficit could also mean less economic growth, because a jump in imports will subtract from the GDP account.
With such a dizzying assortment of possible outcomes in the bond market, what is one to do? First, don’t just look at the headline trade figures, but focus instead on the dynamics going on behind the scenes. If the trade balance improves, bond investors prefer the reason to be a fall in imports rather than a surge in exports. If the deficit climbs, traders hope the cause is a plunge in exports, which would at least ease economic output.
This is not an easy call for equity players either. Basically, they prefer to see the deficit shrink as a result of vibrant demand for exports. That will keep U.S. factories humming, improve the outlook for corporate profits, and bolster the dollar’s value. The only wrinkle here would come from the bond market. Should export growth be so strong that it heightens fears of inflation, interest rates would edge higher and spoil the party for stock investors. In the final analysis, though, stocks tend to do better if the trade balance improves due to an increase in sales overseas.
While investors in the bond and stock markets agonize over how to respond to the latest international trade figures currency traders take a more direct approach. Unless caused by a deep recession in the U.S., any improvement in the trade balance is viewed favorably for the dollar. The more goods and services foreigners buy from the U.S., the more dollars they’ll need to pay for these American products.
In contrast, a worsening trade deficit can undermine the dollar. To purchase foreign goods and services, Americans have to sell dollars so they can pay for these products in local currencies. The problem is that foreign exchange traders are already swimming in a sea of surplus dollars. Flooding the market with even more dollars can only further depress the greenback’s value.
Wholesale inventories in the United States increased by 0.7 percent month-over-month to USD 610.2 billion in November 2017, following a downwardly revised 0.4 percent drop in the previous month and beating market expectations of a 0.4 percent gain, the preliminary estimate showed. Year-on-year, wholesale stocks were up 3.8 percent. Wholesale Inventories in the United States averaged 0.38 percent from 1992 until 2017, reaching an all time high of 2.10 percent in October of 2010 and a record low of -2 percent in March of 2009.
(FORMALLY KNOWN AS MANUFACTURING AND TRADE INVENTORIES AND SALES)
Market Sensitivity: Low to medium.
What Is It: Tracks total U.S. business sales and inventories.
Most Current News Release on the Internet: www.census.gov/mtis/www/mtis.html
Home Web Address: www.census.gov
Release Time: 10:00 a.m. (ET); released six weeks after the month ends.
Source: Census Bureau, Department of Commerce.
Revisions: Tend to be small. Annual benchmark changes come out in the spring or summer and can cover several years.”
Bernard Baumohl. The Secrets of Economic Indicators
Financial markets and the press react mildly to this report because so much of the data has already been put out in separate releases. It’s also hard to get excited about economic events that took place nearly two months ago. Still, on a slow business news day, the retail inventory series might draw some attention, particularly if the economy is reaching an inflection point.
Faster-than-expected growth in retail inventory can upset traders in fixed-income securities because it adds to GDP growth and can put upward pressure on interest rates. A fall in inventory investment subtracts from economic output, which is positive for bonds.
Rarely does the stock market get excited by this release. Though a slowdown in sales and production displeases equity investors because of its implications for earnings, chances are that most investors have already seen and reacted to similar evidence weeks earlier.
The main question for foreign exchange traders is how the news on retail inventories will influence interest rates in the U.S. For them, a jump in the I/S ratio (with inventories rising at a faster pace than sales) is symptomatic of an economy in the process of slowing down. That eventually portends lower interest rates, which translates into a smaller payback for international investors. Currency traders generally look at the dollar more favorably if both sales and inventories are rising at the retail, wholesale, and manufacturing level.