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Trade Deficit Deepest, Home Prices Highest, in History

Tuesday, September 29, 2020

Market indexes began this Tuesday morning roughly flat, ahead of a couple key data points released before the bell: Advance Trade in Goods for August and Case-Shiller Home Prices for July. Neither will carry the impact of the mass of jobs data we’ll get beginning tomorrow, but both demonstrate economic implications for the U.S. going forward.

The Advance Trade in Goods number for last month was, simply, the deepest deficit on record: -$82.9 billion. This is notably worse than the $78.9 billion expected by analysts and the downwardly revised -$80.1 billion for July. Imports rose 3.1%, led by Consumer Goods and Autos, up 7% and 6.2%, respectively. By comparison, Exports rose 2.8%, with Industrial Supplies 10.6% higher but Capital Goods down 3.9% on the month.

What these numbers suggest is that the U.S. is bouncing back from the coronavirus pandemic more slowly than other regions around the world, particularly Asia, where we continue to do most importing and exporting. In fact, Covid-19 rates all along the Pacific Rim, from South Korea to Australia, look to have been contained, with some countries like New Zealand reporting 0 cases the country over on most days. So we see more infrastructure build-outs in Asia, whereas the U.S. has not yet arrived at that place.

In fact, the U.S. is reporting an uptick in cases overall, +37K on the most recently reported day including nearly 6000 cases in Texas for a single day. Florida, which had seen its overall rates of Covid cases decline, may expect a new upswell in cases as the governor of that state has removed all mask-wearing and social distance initiatives. In all, 15 states now are reporting more than 10% rises in new coronavirus cases; like Europe, we look to be going back in the wrong direction.

The Case-Shiller Home Price Index posted the highest home price levels since this survey began at the turn of the millennium, $225K per home in the month of July. The 20-City index (really 19 cities, as Detroit remains uncounted) rose 3.9% overall, with no cities reporting lower price growth. Leading the way were Phoenix, +9.2%, Seattle, +7% and Charlotte, +6%. Lowest on the list were Chicago, +0.8% and New York, +1.3%.

These figures look to represent ancient history, however — a July report released at the end of September. But the Case-Shiller survey routinely has the most accurate reads on housing prices, which feeds into economic growth data by way of being a major cog in the household formation wheel. As such, this data is good, and gives an assist to the narrative that household formation is undergirding the U.S. economy overall. But we shall see if events of the summertime months have had any negative effects on places like Seattle, going forward.

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