By Lucia Mutikani
WASHINGTON (Reuters) – The U.S. trade deficit in goods widened sharply in September, likely as a strong dollar and slowing global demand weighed on exports, but that did not change expectations that trade would lead to an expected rebound in economic growth in the third quarter.
Wednesday’s Commerce Department report also showed moderate increases in wholesale and retail inventory last month, suggesting that slowing domestic demand was forcing businesses to become more cautious about ordering more goods.
The Federal Reserve is aggressively raising interest rates to control inflation, stimulate the dollar and limit spending. The data was released ahead of Thursday’s release of the government’s advance estimate of third-quarter GDP.
“Net exports will contribute significantly to GDP growth in the third quarter, adding about 3.0 percentage points,” said Daniel Silver, an economist at JPMorgan in New York.
The goods trade deficit rose 5.7% to $92.2 billion last month. September’s increase only reversed some of the declines of previous months, leaving the gap considerably smaller in the third quarter. Trade and consumer spending were the only bright spots in the economy in the second quarter.
According to a Reuters survey of economists, GDP likely rebounded to an annualized rate of 2.4% in the third quarter after shrinking at a 0.6% pace in the April-June quarter. The economy contracted in the first half of 2022, but is not in recession, with more than 2.5 million jobs created during this period.
Goods exports fell 1.5% to $177.6 billion last month. The drop was led by a 14.0% drop in food exports.
Shipments of industrial supplies, which include crude oil, fell 3.1%. Exports of consumer goods also fell. But there were increases in exports of capital goods, motor vehicles and other goods.
The dollar has gained nearly 11% against the currencies of major US trading partners this year, which could make US products less competitive but help fight inflation.
The Fed raised its benchmark overnight interest rate from near zero in March to the current range of 3.00% to 3.25%, the fastest pace of policy tightening in a generation or so. more.
Imports of goods rose 0.8% to $269.8 billion. They were supported by a 4.4% jump in imports of capital goods, which bodes well for business capital spending. Imports of motor vehicles and consumer goods also increased, likely as businesses stocked up for the holiday season. But imports of foodstuffs, industrial supplies and other goods have fallen.
Stocks on Wall Street were trading higher. The dollar fell against a basket of currencies. US Treasury prices rose.
Chart: Goods Trade Balance – https://graphics.Reuters.com/USA-STOCKS/dwpkdgewnvm/tradebal.png
SLOWDOWN IN GLOBAL DEMAND
“While the stronger dollar has helped both to ease the cost pressures created by higher world food and energy prices and to reduce the nominal trade deficit, it is almost certain to help decline in net exports over the coming year,” said Mark Hopkins, a senior economist at Moody’s Analytics in West Chester, Pennsylvania. “Slowing economic growth abroad and the growing risk of a global recession are likely to further erode real net trade and its contribution to domestic output.”
But with trade flows still well below pre-pandemic levels, a significant deterioration in the trade deficit is not expected.
The Commerce Department also reported that wholesale inventories rose 0.8% last month after rising 1.4% in August. Retail inventories rose 0.4% after rising 1.4% in August. Retailers find themselves saddled with excess merchandise, a function of both easing supply chain bottlenecks and slowing demand for merchandise, forcing them to offer discounts.
Motor vehicle inventories rose 1.9% after jumping 3.5% in August. Excluding motor vehicles, retail inventories fell 0.1% after rising 0.7% in August. This component enters into the calculation of the gross domestic product.
Inventories were the main drag on GDP in the second quarter. Economists expect a neutral impact in the third quarter. Rising borrowing costs continued to put downward pressure on the housing market, weighing on the economy.
A second report from the Commerce Department released Wednesday showed sales of new single-family homes fell 10.9% to a seasonally adjusted annual rate of 603,000 units in September.
Sales fell 17.6% year-on-year in September.
Chart: New Home Sales – https://graphics.reuters.com/USA-STOCKS/znpnbdkwepl/nhs.png
The 30-year fixed mortgage rate averaged 6.94% last week, the highest in 20 years, from 6.92% the previous week, according to data from mortgage finance agency Freddie Mac.
The median price for new homes in September was $470,600, a jump of 13.9% from a year ago. There are, however, signs that the decline in housing demand is slowing house price inflation.
There were 462,000 new homes on the market at the end of last month, compared to 457,000 units in August. At the pace of September sales, it would take 9.2 months to sell the supply of homes on the market, compared to 8.1 months in August.
“The housing market continues to normalize in an economy under pressure from higher borrowing costs, persistent inflation and uncertainty about future Fed activity,” said economist Jeffrey Roach. chief at LPL Financial in Charlotte, North Carolina.
“Housing demand is likely to decline further over the next few months, putting downward pressure on median prices.”
(Reporting by Lucia Mutikani; Editing by Nick Zieminski, Jonathan Oatis and Andrea Ricci)