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.