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| By Gavin Magor |
America went shopping in August, and the bill came to $105.6 billion.
That's the trade deficit, the gap between what we sold abroad and what we bought, reported this morning by the U.S. Census Bureau and the U.S. Bureau of Economic Analysis (BEA).
It rose 13.7% from a revised $92.8 billion in July.
Exports rose $4.5 billion, while imports rose $17.2 billion.
I don't read this as the start of a weaker economy over the next 30 to 90 days.
It will, however, make the next growth figure look softer than the economy really is.
What Americans Are Buying
Whilst the headline number is large, most of the increase came from oil, gold and equipment.
Imports of industrial supplies rose $9.1 billion, led by crude oil, up $3.3 billion and non-monetary gold (gold not held by central banks), up $3.1 billion.
Capital goods imports rose $6.2 billion, including $2.4 billion more in semiconductors and $1.3 billion more in other industrial machinery.
Companies buying chips and machinery are investing in their own growth.
The gold has no bearing on growth, since the BEA swaps gold trade for a separate adjustment when it calculates gross domestic product (GDP).
The deficit for the year so far is still down $138.2 billion, or 19.9%, from the same period of 2025, with exports up 11.8%.
Why Q3 GDP Will Look Soft
Imports are subtracted when GDP is calculated.
The Federal Reserve Bank of Atlanta's GDPNow model has net exports taking 2.6 percentage points off third-quarter growth.
Its growth estimate is still 3.7%.
Consumer spending adds 2.2 points, inventories 2.0 points and business investment 1.6 points.
The government's first estimate is due Oct. 29.
I expect it to come in solid, though well below the 5% the model was showing as recently as late September.
The Real Pressure Points
If the economy does slow before year-end, I'd look to borrowing costs and energy first, rather than trade.
September payrolls rose just 29,000, and unemployment edged up to 4.2%.
The Fed raised rates in September to a range of 3.75% to 4% and signaled one more hike this year.
The 10-year Treasury yield closed yesterday above 5.3%, a new 52-week high.
Gasoline was up 27.4% over the year in the August Consumer Price Index (CPI), and crude oil posted the biggest import increase of any item the release singled out.
What It Means for Stocks
For stocks generally, the trade data isn't the threat.
The S&P 500 closed yesterday at 7,773.95, within 1% of its record.
With the economy still growing, I'd stay invested.
The highest long-term Treasury yields in more than two decades do give savers a real alternative, though, so new money should go to work with a specific job in mind.
Protecting Your Purchasing Power
The 2-year Treasury Note closed yesterday yielding about 4.8%.
Consumer prices rose 3.4% over the past year, so that's roughly a 1.4-point cushion over inflation, backed by the U.S. government.
If the Fed hikes again, two years is short enough that you won't be stuck at today's rate for long.
Hold it to maturity and the price swings in between don't matter.
Energy is what's eating into purchasing power right now, so it makes sense to own some of it.
ExxonMobil (XOM) carries a Weiss rating of “B,” a BUY.
August's report showed crude oil exports up $2.0 billion and fuel oil exports up $1.2 billion, so U.S. energy is finding buyers abroad.
With Brent crude near $101 a barrel, ExxonMobil earns more from the same prices that cost you more at the pump.
It closed yesterday at $164 and pays $4.12 a year in dividends, a 2.51% yield.
Stocks That Benefit from What Americans Are Buying
If the economy holds up, the import numbers point to two kinds of companies that should keep benefiting.
On the business investment side, Caterpillar (CAT) sells the engines, turbines and heavy equipment behind the data center and infrastructure buildout.
It carries a Weiss rating of “B-,” a BUY.
Earlier this year, it raised its large-engine growth target and announced plans to expand turbine capacity 2.5 times.
It also just committed $1 billion to a U.S. plant and a dealer acquisition.
Shares closed yesterday at $848.14, up 45.21% this year on a total return basis but still below June's high of $1,073.46.
On the inventory side, the goods we import have to be stored somewhere.
Inventories are adding 2.0 points to third-quarter growth, and that stock sits in warehouses.
Prologis (PLD) owns and develops logistics warehouses near major population centers and transportation hubs.
It carries a Weiss rating of “B-,” a BUY.
Shares closed yesterday at $128.08, down 9.60% over the past 30 days on a total return basis, and the dividend yields 3.27%.
That's a better entry point than you had a month ago.
Key Items We're Watching
- The Atlanta Fed's next GDPNow reading, which will fold in the full August trade figures.
- The Fed's September meeting minutes this week, for clues on another hike.
- The September CPI report on Oct. 14.
- The advance estimate of third-quarter GDP on Oct. 29.
- Third-quarter reports from Prologis, expected the week of Oct. 26, and Caterpillar, expected the week of Nov. 2.
- The September trade report on Nov. 4.
Bottom Line
America's August shopping trip was mostly oil, gold, chips and machinery, which is what a growing economy buys.
The trade gap will take something off the Oct. 29 GDP headline, but I don't see a downturn in the next 90 days.
The bigger pressure points are rates and energy.
If you want to add more protection for your purchasing power, consider buying the 2-year Treasury Note and/or ExxonMobil.
For potential bonus growth, look into Caterpillar and Prologis.
A $105.6 billion bill is a lot less worrying once you see what's in the cart.
Cheers!
Gavin
