Just last week, and in the prior month, the economic data signaled that the economic recovery might be slowing. According to separate data from the trade deficit and from a services index reading, that was then.
Tuesday’s economic calendar included two recovery reports. One was from the U.S. Department of Commerce on the trade balance, and another came from the Institute of Supply Management and covered the non-manufacturing purchasing managers’ report.
It may seem odd to cheer trade deficits, but the new economy just comes with different read-through views than what we may have learned in prior decades.
The U.S. trade deficit did widen out to $67.1 billion in August, after a $63.6 billion deficit in July. This report offered a wider deficit than the $66.2 billion projected by Dow Jones. While trade deficits are deemed negative in classical economic terms, the move represents that the flow of goods is picking back up despite no decision on additional stimulus to unemployed Americans having been reached.
Note that this was reportedly the widest deficit going back to 2006 as imports recovered to pre-pandemic levels. The Commerce Department’s report indicated that imports rose by 3.2% to $239 billion in August and exports rose by 2.2% to $171.9 billion.
The driving force behind the growth in imports was tied to consumer goods and food. Some of that likely was due to the massive economic stimulus from before the summer, as the spending continued after expanded benefits expired in July.
One area of weakness was in the industrial supplies imports falling in August. Imports of capital goods and autos also were slower, and exports were also weak in capital goods and industrial supplies being sent from the United States to other nations.
The United States is still considered a post-manufacturing economy, and the ISM Services Index also beat expectations. September’s reading of 57.8 was up from 56.9 in August, and economists had predicted that the services reading would tick down to 56.2 rather than improve.
Within the services industry, business activity ticked up to 63.0 in September from 62.4 in August. The new orders subindex rose by a wider margin to 61.5 from 56.8. Employment also picked up, with the 51.8 reading being above the 47.9 reading from August. It was the first month of employment growth since February.
One area that stood out about the unexpected gain in the ISM services report was that those gains cannot be attributed just to prices. The prices index of 59.0 was down 5.2 percentage points from August’s level of 64.2, indicating that prices increased in September at a slower rate.
Many economic reports are still coming out that show mixed views on the overall strength of the economy. These are unlikely to signal any robust overheating, but they are still not necessarily continuing with all the slowing recovery concerns that had been seen throughout September.
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