Trade Balance

The U.S. trade deficit in April narrowed 2.12% to $46.2 billion from $47.2 billion in March (revised downward from $49 billion), hitting a seven-month low.  The consensus estimate was for a deficit of $48.8 billion.  Exports were $0.60 billion more than in March and imports were $0.4 less than March, resulting in a narrowing of the deficit by $1 billion.   Exports hit a record high helped by shipments of industrial-materials, soybeans and corn.   Looks like the administrations efforts to move to free fair trade is making an impact.

Component breakdown:

• Exports of industrial supplies and materials, such as fuel oil and petroleum products, increased $1.3 billion to a record high of $45.7 billion (petroleum exports hit a five-year high)

•  Exports of capital goods decreased $1.4 billion, the main driver was a $2.8 billion decline in exports of civilian aircraft
•  Exports of goods and services rose 3% to a record $211.2 billion

•  Imports of autos, parts, and engines decreased $0.9 billion
•  Imports of industrial supplies and materials increased $1.2 billion, driven by a $1.0   billion increase in crude oil imports
•  Imports of consumer goods dropped $2.8 billion, held down by a $2.2 billion decline in imports of cellphones and other household goods, motor vehicle imports fell $1.0 billion

In April, the trade deficit with China decreased by $3.4 billion to $30.8 billion; as exports decreased $1.4 billion while imports decreased $4.7 billion.  The deficit with Canada increased to $3.6 billion from $2 billion.  May could see an increase in imports as manufactures took advantage of lower prices before trade tariffs kicked in.  The trade deficit is still on pace to widen to its highest level since 2012.

The increase in exports will have a favorable impact on Q2 GDP, a smaller trade deficit adds to GDP.         As we mentioned previously, the Atlanta Fed raised its GDP forecast for the second quarter to 4.8%.  

Nonfarm Productivity and Unit Labor Costs

Productivity in the first quarter was revised lower to 0.4% from 0.7%.  Unit labor costs were revised higher to 2.9% from 2.7%, reflecting a 3.3% increase in hourly compensation and a 0.4% increase in productivity. 

• Output increased 2.7% and hours worked rose by 2.3%
• Quarter over quarter productivity rose to 0.4% and unit labor costs rose to 2.9%
• Year over year unit labor costs and productivity both rose 1.3%
• Manufacturing productivity decreased 1.2% in the first quarter as output increased 1.7% and hours worked increased 2.9%

Lower productivity will have the opposite effect on GDP than a smaller trade deficit has.

Crude Inventories

For the week ended June 1, crude oil inventories increased by 2.1 million barrels to 436.6 million barrels.  Total petroleum inventories increase to 15.8 million barrels.  The build in inventories was above expectation and WTI crude oil sold off after the release, trading down to $64.35 from $65.38 and is currently trading @ $64.70.