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THE OLD BALL GAME: TRADE BALANCE, HOME SALES, SMALL BUSINESS SENTIMENT

A data triple-play covered several bases: international trade, the housing market, and small business sentiment. And to stretch the baseball metaphor, they amounted to a ball, a strike and a line-drive single.

Starting with trade, in April the difference in the value of goods and services imported to the U.S. and those exported abroad USTBAL=ECI narrowed by 1.2% to $55.9 billion, according to the Commerce Department, just a hair shy of the $56.1 billion consensus.

Under the hood, exports hit a record by increasing 2.6%, a modest acceleration from March's 2.2% growth. Imports - a GDP detractor - tapped on the brake, increasing by 2.0% after the prior month's 2.3% increase. The closely watched trade deficit with China widened by 6.5% to $10.4 billion.

Capital goods exports and imports grew by 6.1% and 5.8%, respectively.

Behind this fairly humdrum report is the reality that the Strait of Hormuz, a vital world trade bottleneck, remains largely closed to traffic amid the U.S.-Israeli war on Iran, now in its fourth month.

"AI investment and inventory stockpiling bumped up imports in April," says Oren Klachkin, market economist at Nationwide. "We see net exports dragging modestly on GDP growth in Q2 and posing less of a drag in Q3, based partly on a resolution to the conflict that reopens the Strait of Hormuz. That said, the standoff poses a threat to the US outlook as long as the strait remains closed."

Crossing the street to the housing market, sales of pre-owned U.S. homes USEHS=ECI improved by 3.2% in May to 4.12 million units at a seasonally adjusted annual rate (SAAR), according to the National Association of Realtors (NAR).

That's 2.5% north of the 4.07 million SAAR analysts expected, and marks a solid acceleration from April's upwardly revised 0.7% gain.

It's also the most robust reading so far this year.

In detail, single-family home sales - which represented just over 91% of the total - rose by 3.5%, while the volatile condo/co-op segment was essentially (and uncharacteristically) unchanged for the second straight month.

NAR shows a 2.8% monthly increase in the median home price. At May's sales pace, it would take 4.5 months to sell every home on the market, unchanged from April.

The slight increase occurs against a backdrop of elevated borrowing costs. The average 30-year fixed contract rate has been wafting above the 6% level since September 2022. Its most recent reading is 6.57%, 48 basis points hotter than where it sat at the onset of the war, according to the Mortgage Bankers Association.

"We doubt that the solid gain in existing sales to a five-month high signals that the housing market is turning a corner," says Oliver Allen, senior U.S. economist at Pantheon Macroeconomics. "The latest increase merely brings home sales back in line. The renewed rise in mortgage rates since the war began—and corresponding dip in purchase applications—suggest sales will tread water at best over the next month or two."

Changing gears, the mood among small business owners in the U.S. grew a tad more pessimistic in May, according to the National Federation of Independent Business (NFIB).

NFIB's Optimism Index USOPIN=ECI shed 0.6 points to settle at 95.3, remaining below its 52-year average of 98.

Digging deeper, the Uncertainty Index rose by 3 points to 91, rising further above 68, its long-term average.

The employment component inched lower for the third month in a row, with job openings and hiring plans plunging to a six-year low. Reports of supply chain disruptions ticked higher, and a rising percentage of respondents said inflation was their most pressing problem.

The percentage of survey participants reporting actual price increases surged six points to the highest reading in over three years. Planned price increases jumped seven points to the hottest reading since July 2022. Those expecting business conditions to improve slid seven points to their lowest level since October 2024.

The most vexing issue for small business was taxes, followed by inflation.

"Despite the enthusiasm around AI, the overall picture is divided," writes NFIB chief economist Bill Dunkelberg. "More small business owners are struggling with significant and unpredictable hikes in fuel prices, which are more challenging for small businesses to pass on to their customers compared to their larger corporate competitors."

As a reminder, the NFIB is a politically active membership organization whose PAC skews heavily Republican, according to the Center for Responsive Politics/opensecrets.org.

(Stephen Culp)

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