April U.S. Trade Deficit Deepened Less Than Expected

During April the U.S. foreign trade deficit deepened to $63.4B from a little revised $61.9B in March. The deficit fell short of Consensus expectations for $65.1B.

The latest deficit was the deepest since the near-record in January of $66.2B. During the first four months of 2006 the foreign trade deficit averaged $63.5B versus a $56.3B deficit averaged during the first four months of 2005.

Total exports slipped 0.2% in April after the 1.8% pop during March. Nonauto consumer goods exports led the decline with a 3.5% slide (+5.0% y/y) which reflected lower apparel & appliance (+12.2% y/y) exports that had been strong. Capital goods exports also slipped 0.5% (+9.2% y/y) while exports of advanced technology products fell 13.5% (NSA, +6.0% y/y). Exports of industrial supplies & materials rose 0.2% (13.4% y/y) and automotive exports rose 1.0% (8.9% y/y).

April imports rose just 0.7% though a 6.4% (22.5% y/y) rise in petroleum imports wholly reflected higher prices. In constant dollars petroleum imports fell 3.7% (-5.2% y/y). The per day quantity of all energy-related petroleum product imports fell 1.5% (-5.1% y/y) but crude oil prices rose 8.7% (26.9% y/y) to an average $56.82 per bbl.

Imports of capital goods ticked up 0.3% (8.8% y/y) and are up 4.7% year to date. Imports of advanced technology products fell 15.1% (NSA, +2.9% y/y) and imports of nonauto consumer goods fell 3.5% (+5.0% y/y).

The US trade deficit with China deepened to $17.0B ($201.6B for 2005) while the trade deficit with Japan deepened to $7.8B ($82.7B in 2005). The trade deficit with the Asian NICs rose to a still modest $0.7B ($15.9B in 2005). Growth in both exports & imports with the Asian NICs has been firm. The deficit with the European Union eased to $9.4B ($122.4B in 2005).

Total import prices advanced another 1.6% last month after a 2.1% jump during April. Again, the rise easily surpassed Consensus expectations which had been for a 0.7% increase.

Import prices less petroleum jumped 0.6%, the strongest monthly gain since October. That strength was led by higher prices for nonoil industrial materials which surged 2.5% (9.0% y/y) reflecting firm prices for paper (5.9% y/y), nonferrous metals (49.7% y/y) and chemicals (5.5% y/y).

Capital goods prices were unchanged as they have been all year (-1.6% y/y) and excluding computers, capital goods prices rose just 0.1% (0.6% y/y). Prices for nonauto consumer goods rose 0.3% (-0.1% y/y) following two months of decline.

During the last ten years there has been a 66% (negative) correlation between the nominal trade-weighted exchange value of the US dollar vs. major currencies and the y/y change in non oil import prices. The correlation is a lower 47% against a broader basket of currencies and a lower 57% against the real value of the dollar.

Petroleum prices posted a 5.2% increase but recent declines in crude oil prices suggest moderation.

Export prices were firm again and rose 0.7%. Pricing strength has been broad based for industrial supplies (10.9% y/y) but foods & beverages are down 1.2% (y/y), capital goods prices are just 0.2% higher y/y while nonauto consumer goods exports prices are up 1.0% y/y.

Growth in total credit market debt outstanding rose 10.2% (AR) last quarter. That was a modest slowdown from the 12.1% advance during 4Q but it was enough to lift the y/y rate of growth to 9.7%, its fastest since 1999.

A jump in borrowing by the Federal government continued to lead debt growth with a 14.0% (AR) advance last quarter, its fastest in a year.

Moving in the other direction, growth in household sector borrowing slowed to 9.1%, its slowest quarterly gain in a year following the 11.7% surge during all of 2005.Home mortgage obligations grew at a still firm 12.6% rate (14.7% y/y) but consumer credit fell at a 5.1% (AR, +2.5% y/y). Bank loans jumped 12.3% (50.0% y/y).

Business borrowing picked up a bit and grew at an 8.3% annual rate (6.3% y/y).

Household sector asset values rose at a 10.8% annual rate (10.4% y/y) during 1Q driven by a 10.1% (14.6% y/y) gain in the value of real estate holdings. Financial asset values rose 11.6% (8.7% y/y) due to a 40.5% (AR, 20.3% y/y) rise in the value of mutual fund shares. The value of corporate equities held directly ticked up 0.7% (-1.6% y/y).

The net worth of the US household sector last quarter rose 2.7% (10.1% y/y) to a record $53.830 trillion. The gain lifted the ratio of net worth to income to 5.79 times.

We talked about UK trade just a month ago, but it seems worth revisiting right away. The trade deficit (on goods and services) in April held at March's level, £4.0 billion (a slight revision from the initial £3.8 billion). Both exports and imports eased, imports for a second month. At £33.8 billion, imports are 2.5% below their February peak. Exports edged down 0.4% in April after a 1.7% increase in March. Even so, both exports and imports remain substantially above comparable 2005 amounts.

Two-way trade in fuel remains an important contributor to total UK trade flows even though fuel is only around 8% of both total exports and imports. But exports of crude oil fell 17.6% in April after a 48.3% jump in March. Volume dropped while prices continued rising. The value per tonne increased 6% in April alone. Notably, other exports, excluding fuels, held steady with March and are still more than 13% above a year ago.

Imports of fuel had risen sharply in March and dropped even more sharply in April, maintaining a wide seesaw pattern for a fourth month. As with fuel exports, volume corrected while prices continued rising. A £0.6 billion decline in the value of fuel imports more than offset an increase in other goods and services of 1.5%.

Among non-fuel products, manufactures are sustaining a trade deficit of about £4.4 billion, although there is some tendency toward an improving turn as exports are growing while imports have moderated in both March and April. The other major segment showing a trade deficit is food, with food imports growing steadily while exports remain flat. That generates a widening deficit that reached £1.2 billion on average for the first four months this year, 26% of the total trade deficit.