Whether tariff effects are in play is uncertain. What is certain, at least for third-quarter GDP, is that the deficit in net exports is deepening at a substantial rate. The nation's trade deficit widened to $53.2 billion in August with July at $50.0 billion. This compares with a monthly average of $44.6 billion in the second quarter which spells big trouble for net exports in the third-quarter GDP report.
Exports are in reverse, falling 0.8 percent in August after a 1.0 percent drop in July. The export of services, which is the nation's strength and which seems to be dodging any trade-war fire, rose 0.3 percent to $70.5 billion in August. Exports of goods, in contrast, fell 1.4 percent to $138.9 billion following July's 1.6 percent plunge. The weakness in goods is centered in agricultural products, down $1.2 billion in the month to $12.0 billion with industrial supplies also noticeably weak, down $2.4 billion to $44.1 billion.
On the import side of the report, they rose 0.6 percent to deepen the deficit with gains centered in vehicles which rose $1.0 billion to $31.7 billion. Imported consumer goods, which are the nation's big trouble spot, rose $0.9 billion to $53.5 billion.
Country data show a deepening imbalance with China, at $38.6 billion vs July's $36.8 billion with the deficit with Mexico widening to $8.7 billion vs $5.5 billion in July. The deficit with Canada narrowed noticeably to $2.7 billion as did the deficit with the EU at $15.7 billion. The deficit with Japan deepened sharply in the month to $6.0 billion from August's $5.5 billion.
Tariffs are an unfolding controversy which cloud the results for August. Not clouded at all, however, is the effect of net exports on third-quarter GDP which is substantially negative. But third-quarter GDP looks to get a favorable lift from welcome inventory growth and, perhaps, from consumer spending. Still the cross-border diagnosis in the third quarter, with one month still to go, looks to be clearly unfavorable.
After narrowing sharply in the second quarter, the trade deficit opened the third quarter with a steep deepening to $50.1 billion in July and further deepening is expected for August. Based on advance data for the goods portion of the trade report, forecasters see the August international trade deficit at a consensus $53.7 billion. This would compare very unfavorably with a monthly average of $44.8 billion in the second quarter. The results for August will mark a key entry into third-quarter GDP.