US: Exports to weaken further  - Wells Fargo

The US trade deficit in June widened. Analyst at Wells Fargo point out that exports declined and they look for further weakness over the next few months as soybean exports fall back to their normal run rate. 

Key Quotes: 

“Data released this morning showed that the U.S. deficit in international trade in goods and services rose to $46.3 billion in June from $43.2 billion in May.”

“Also of interest was the small decline (only $43 million) in exports of food, feed and beverages. As we have written previously, soybean exports have surged in recent months—they jumped to $4.2 billion in June from about $1.4 billion per month early this year—as farmers have endeavored to get their beans on boats and out of the country before retaliatory tariffs took effect. Consequently, we look for soybean exports to weaken back to their normal run rate in coming months, which could exert some headwinds on overall export growth.”

“U.S. real GDP grew at an annualized rate of 4.1 percent in Q2, the strongest sequential rate of growth in nearly four years due in part to the outsized contribution (1.1 percentage point) from real net exports. However, the 1.4 percent drop in real exports of goods in June means that overall exports entered the third quarter with weak momentum.”

“We look for weak growth in exports over the next few months due in part to payback for the previous surge in soybean exports. Consequently, we expect that real net exports will exert a modest drag on real GDP growth in the third quarter. In short, it will be difficult for GDP growth in the current quarter to match its stellar performance in Q2.”