Trade Deficit Shrinks, Core Producer Prices Decelerate

- The Trade Deficit for June shrank to -$58.1 billion versus estimates of -$61.0 billion and -$59.2 billion in May.

- The Producer Price Index for July rose .6% versus estimates of a .2% increase and a -.2% decline in June.

- The PPI Ex Food & Energy for July rose .1% versus estimates of a .2% gain and a .3% increase in June.

BOTTOM LINE: The US trade deficit unexpectedly narrowed in June as exports soared to a record, validating the Fed’s forecast that global demand will help the economy rise out the housing slump, Bloomberg said. An improving trade deficit helped boost US economic growth to an above-average 3.4% in 2Q. I expect the deficit to only improve modestly over the intermediate-term.

A measure of inflation at the wholesale level rose less than forecast in July, indicating inflation outside of energy costs remains contained. Food prices fell .1%, the third consecutive monthly decline. Core producer prices rose 2.3% year-over-year versus estimates of a 2.5% gain. Fuel prices rose 2.5% in July versus a 1.1% decline in June. Computer prices fell 3.3% in July. Since this report, energy prices have declined meaningfully. I expect next month’s PPI to show further deceleration in the headline number.