Smaller US Trade Deficit Supports Strong Economic Growth Estimates for Third Quarter

• The U.S. trade deficit narrowed sharply in August as exports increased to a record high, suggesting trade could have little or no impact on economic growth in the third quarter. The smaller-than-expected trade gap reported by the Commerce Department on Tuesday added to data on the labour market and consumer spending in suggesting that the economy remained on solid footing last quarter.
• The economy's strength likely has no impact on expectations that the Federal Reserve will cut interest rates again next month. It, however, reinforced views that the U.S. central bank did not need to pursue another half-percentage point rate reduction. Economists at Goldman Sachs maintained their forecast for gross domestic product to rise at a 3.2% annualised rate in the July-September quarter after the trade data.
• "This report says that net trade supports GDP growth in August," said Carl Weinberg, chief economist at High Frequency Economics. "Putting together July and August figures suggests that net trade is flat so far in third quarter, making no significant addition or subtraction to GDP growth so far." Trade has subtracted from gross domestic product for two straight quarters.
• The trade gap contracted 10.8% to $70.4 billion, the smallest in five months, from a revised $78.9 billion in July, the Commerce Department's Bureau of Economic Analysis said.
• Economists polled by Reuters had forecast the trade deficit would narrow to $70.6 billion from the previously reported $78.8 billion in July. Exports increased 2.0% to a record $271.8 billion. Goods exports surged 2.5% to $179.4 billion, the highest level since September 2022. They were boosted by a $1.7 billion rise in capital goods to a record high, mostly reflecting telecommunications equipment, civilian aircraft, computer accessories as well as other industrial machinery.

(Source: Reuters)