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The U.S. trade deficit shrank to a five-month low in August, the latest month for which data are available. The deficit in goods and services narrowed to a seasonally adjusted $70.4 billion in August, from a revised $78.9 billion in July — a 10.8% monthly decline. The trade deficit is a measure of the difference between what the United States buys from foreign nations and what it sells overseas. The sharp decline in August was due to a larger services surplus and a pickup in merchandise exports. The monthly trade deficit is now closer to where it started the year.
Look for exports to weaken a bit over the next few months, after they rose 2% in August from the previous month. The increase was broad-based across merchandise goods and services. A robust 3.1% rise in capital goods was primarily driven by exports of civilian aircraft, telecommunications equipment and computer accessories. These categories have been some of the main drivers of both domestic durable goods demand and overall export growth in 2024. Meanwhile, exports of services rose to an all-time high of $92.3 billion, with travel exports — or spending by visitors to the United States — rising 2.8%. Exports have contended this year with a weaker global backdrop and a stronger dollar, which makes U.S. goods relatively more expensive abroad. And while the dollar has weakened a bit over the past couple of years, it is still relatively strong. With China’s economy yet to meaningfully stabilize, and growth across the eurozone showing some signs of fragility, the strength in exports in August is unlikely to persist.
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A decline in imports in August will likely be temporary. Total imports fell 0.9% from the previous month. Merchandise imports fell 1.4%, while services imports rose 1.1%. Industrial supplies dragged down overall goods imports, as crude oil and finished metals each saw sharp contractions. Despite the monthly decline, total goods imports are up 7.2% on a year-over-year basis, which is much stronger than growth in goods exports. Travel imports — a measure of Americans spending while traveling abroad — rose to a six-month high.
Trade will likely provide a small net contribution to GDP in the third quarter. After nearly two years of positive contributions to growth, trade has been a substantial drag this year. The bigger trade gap in the second quarter shaved 0.7% off GDP growth in the second quarter. If sustained, the softer pace of import growth over the past few months will help trade turn back into a neutral, or slightly positive, factor for overall GDP growth.
Source: Department of Commerce, Trade Data
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