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U.S. Economy Boosted by Improved Trade Deficit and ISM Non-Manufacturing PMI

By Glenford S. Robinson

On Tuesday, November 5th, the U.S. Census Bureau and the U.S. Bureau of Economic Analysis, announced that the U.S. monthly international trade deficit, decreased to $52.5 billion in September, down $2.6 billion from $55 billion in August, as imports decreased much more than exports. The previously published deficit for August was $54.9 billion.

The U.S. Exports Number, released by the Bureau of Economic Analysis, provides the total US dollar amount of all merchandise and services exported to other countries. A higher than previous reading should be perceived as positive for the U.S. economy and bullish for the USD, while a lower than previous reading should be perceived as negative for the U.S. economy and bearish for the USD. Exports means all goods or services sold by U.S. companies and private individuals to other countries. These other countries play the role of importers or buyers of American goods or services, otherwise known as exports. Exports describe goods or services created domestically and sold to foreign countries.

The U.S. Exports Number released on Tuesday, November 5, 2019, at 8:30AM, New York Time for the month of October, came in at 206 Billion, 1.8 Billion below the previous reading of 207.8 Billion.  This number tells us that the current number came in less than the previous reading, which signifies a negative for the U.S. economy and bearish for the U.S. dollar.

However, this one economic indicator alone won’t have a profound effect on the economy or currency market in the short term. Its impact if any, will only be moderate. It will take more than one economic indicator to truly affect the economy or the financial markets in the short term. The imports number and trade balance number will provide more information as to the true movement of money into and out of the U.S. economy. Lets now talk about the Imports Data.

The U.S. Imports, released by the Bureau of Economic Analysis, measures any good or service legally brought into the United States from other countries for use in trade. Domestic consumers receive Imported goods or services from foreign countries. A lower than previous reading should be perceived as positive for the U.S. economy and bullish for the USD, while a higher than previous reading should be perceived as negative for the U.S. economy and bearish for the USD. U.S. Imports describe goods or services created outside of the country and bought by consumers inside the country.

The Imports Number released on Tuesday, November 5, 2019 at 8:30AM, beats previous readings, posting a 258.4 Billion decrease from the previous 262.9 Billion. This result tells us that the U.S. economy received less imported goods or services than last month, a good sign for the economy in terms of trade balance. The trade balance equals exports minus imports. The Imports Number came in at such a high mark that it improved the overall trade deficit. We will now talk about the Trade Balance Report for September to see the actual improvement value.

The Trade Balance, released by the Bureau of Economic Analysis, measures the difference in value between imported and exported goods or services over the reported period. A positive number indicates that more goods and services were exported than imported. A Trade Balance with a negative value is called a trade deficit while a Trade Balance with a positive number is called a trade surplus. As we have mentioned previously a Trade Balance equals the value of exports minus the value of imports.

In this release of the Trade Balance for September, the current number matched forecast at -52.5 Billion, beating out a previous reading of -55 Billion. A reading of -52.5 Billion from -55 Billion is a welcomed 2.5 Billion improvement. This result shows that there were less goods or services imported into the country, which is good for the economy. So, even though the U.S. Exports data was not so great, the vast improvement of the U.S. Imports Number picked up the slack, which was displayed on the Trade Balance. The economy still holds a trade deficit; however, this trade deficit was reduced in the month of September, which bodes well for the U.S. economy and the USD. 

Foreign currency buyers, sellers or traders could be looking at these numbers in a positive light. Some traders may look at this result as an opportunity to buy the Euro at low prices with the intention of selling the currency later when prices rise, and some traders or currency buyers and sellers could be looking at buying the USD with the intention of selling the currency when it appreciates higher in prices. Anyone who exchanges one currency for another in their day-to-day activities such as vacations or selling goods or services to other countries with other currencies, indulges in currency trading.

A higher than expected reading of the U.S. Trade Balance should be perceived as positive for the U.S. economy and bullish for the USD, while a lower than expected reading should be perceived as negative for the U.S. economy and bearish for the USD. The positive Trade Balance Number signals that the U.S. economy has improved in September. More monthly Trade Balance Numbers will be needed to further confirm that the U.S. economy has indeed turned the corner.

Last week, sources said the US and China were close to a trade deal, but president Trump stated later that there would be no deal anytime soon. The EUR/USD responded to the earlier statement by trading higher, but later fell sharply following the president’s no-deal statement. How does the US-China trade war affect Europe?

One of the European Economy’s leading contributor, Germany, depends heavily on exports of automobiles via the U.S. to China. Therefore, any extended disagreements between the two countries involving tariffs is bound to negatively impact the German economy, and the European economy. In fact, this is exactly what has happened since the US-China tariff war began in late 2018. Since that time, growth in the European economy has drastically slowed and continues to do so. This explains one of the reasons why the EUR/USD currency pair has dropped from where it was in 2017 to where it is today (from a high of 1.2555 on Feb 1st, 2018 to a low of 1.0884 on Sep 2nd, 2019). Things have improved since then, though. The EUR/USD currency pair currently sits at 1.1019 as of this writing. The US-China trade war therefore caused German manufacturing activity to decreased dramatically spiraling the country’s economy into a possible recession. The Sino-U.S. trade war does not negatively affect the US economy as much as it does the European economy.

Here is yet another economic indicator with positive news, very refreshing. The ISM Non-Manufacturing PMI for October, released on Tuesday, November 5, 2019 at 10AM, New York Time, smashed forecast of 53.5 and a previous reading of 52.6 with a whopping increase of 54.7. Wow!

The Institute of Supply Management (ISM), Non-Manufacturing purchasing managers’ index (PMI), (also known as the ISM Services PMI), surveys purchasing managers at businesses that make up the Non-Manufacturing sector. The survey offers investors valuable information into the future economic health of the country.

Investors use PMI surveys as a leading economic indicator to predict economic future. A reading above 50% indicates expansion of the non-manufacturing sector and the economy, while a reading below 50% indicates contraction of the sector and the economy. The current reading of 54.7% for October, released on Tuesday, November 5, 2019 at 10AM, New York Time, shows that the economy has expanded in October and will continue to do so, because this survey always provides a glimpse into the future. Forecasted reading and previous reading were set at 53.5% and 52.6%, respectively.

A higher than expected reading should be perceived as positive for the U.S. economy and bullish for the USD, while a lower than expected reading should be perceived as negative for the U.S. economy and bearish for the USD. In fact, wise investors and traders will begin to take advantage of these economic signals. Being able to interpret this kind of economic information is a vital skill for investors and traders. It is like being on the front line of a battlefield. The person who keeps an eye on economic indicators will be the first to know when the economy change course.

US Economy Boosted by Improved Trade Deficit and ISM Non-Manufacturing PMI


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