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Afternoon Note

GDP Boost

By Charles Payne, CEO & Principal Analyst
6/6/2018 1:41 PM
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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:

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. 

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.  

EIA Petroleum Inventories

Actual

Expected

Crude Oil

2.1 million

-2.0 million

Gasoline

4.6 million

0.6 million

Distillates

2.2 million

0.8 million

 
Lower crude prices are helping fuel a move higher in equity markets.  The Dow was higher by @ 100 points prior to the number but has since rallied another 100 or so points as it tests the 25,000 level. 

Comments
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J on 6/6/2018 3:00:50 PM
 

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