Economic news about a sharply expanding U.S. trade gap, a wider federal budget deficit, and the Fed's decision to buy government debt spooked the markets on Wednesday, August 11.
The U.S. trade gap expanded a surprising 18% in June to $49.9 billion versus $42.0 billion in May as American consumers' appetite for imports from China and foreign oil continued at a strong pace. June exports totaled $150.5 billion, $2.0 billion less than in May, and imports totaled $200.3 billion, $5.9 billion more than in May, the Department of Commerce announced.
In other economic news, the U.S. Treasury reported that the federal budget deficit in July ballooned to $165 billion compared to $68.4 billion in June.
Market jitters were driven not only by the trade and budget figures, but by the dollar's rise against weaker currencies including the Chinese yuan as well as the Federal Open Market Committee's August 10 announcement that it will use mortgage bond payments to buy long-term Treasury debt. Dow industrials were down over 2% in midafternoon trading.
According to the trade report, the deficit in international goods and services, which reflects the difference between U.S. sales abroad and imports into the country, has not been this high since October 2008 when it totaled $59.4 billion.
While the U.S. showed an export surplus totaling $4.3 billion with a handful of trading partners including Hong Kong and Australia, it was overshadowed by a $26.2 billion deficit with China, up $3.9 billion since May. Other trade gaps that widened in June included those with the major oil-exporting nations, at $8.9 billion versus $7.8 billion in May, and the European Union, at $7.8 billion versus $6.2 billion in May.
"The June trade deficit rose to $49.9 billion from $42.0 billion, well above the consensus $42.1 billion," said Ian Shepherdson, chief U.S. economist for High Frequency Economics Ltd., in Valhalla, New York, in an analyst note. "This is spectacularly terrible. All the damage is in the core numbers; the oil deficit dipped marginally. But goods imports excluding oil and aircraft jumped 4.5%, following a massive 6.4% leap in May."
The $7.7 billion May to June deficit in exports of goods mainly reflected decreases in capital goods and industrial supplies and materials. More than half of the $5.4 billion increase in imports of goods reflected increases in consumer goods. Another big contributor to the rise in imports was automotive vehicles, parts, and engines.
The smaller services sector posted a $0.3 billion increase of exports, largely in travel and professional services, while imports increased $0.6 billion. The imports increase was mostly accounted for by increases in transportation and travel as well as royalties and license fees that included payments for rights related to the 2010 soccer World Cup.
Meanwhile, the U.S. government ran a budget deficit of $165 billion in July, according to the Treasury Department's monthly statement. The deficit represents the 22nd month of consecutive budget shortfall, and the year-to-date deficit now stands at $1.17 trillion versus last year's record 10-month deficit of $1.27 trillion. Government spending totaled $320.6 billion versus tax and other receipts of only $155.5 billion for July. This compares to $319.5 billion in spending and $320.6 billion in receipts for June.
Market consensus before the Treasury announcement was for a budget deficit of $170 billion.
Read a story about last month's deficit numbers from the archives of InvestmentAdvisor.com.