Trade deficit shrinks

August 8, 2023

The U.S. international trade deficit narrowed by 4.1% in June to $65.5 billion, in line with expectations. Imports fell by 1.0% in the month, much more than the 0.1% drop in exports. That rounds out the second quarter with two consecutive months of narrowing following a large increase in the deficit in April. The trade deficit has shrunk 22.3% year-over-year.

Imports of both goods and services fell in June. Capital goods led most of the decrease along with industrial supplies and materials, including oil. Those decreases were partially offset by increases in passenger cars and consumer goods. Retail inventories grew once again in June as vehicle dealers stocked up 1.5% in June. Retailers, except for autos stocked up for the first time since March of this year. On the services side, travel imports decreased by $0.3 billion on a seasonally adjusted basis despite record travel bookings abroad.

The drop in goods imports is not surprising considering the trade numbers coming out of China today. China's exports fell 14.5% year-over-year, more than expected. The U.S. trade deficit with China fell by $2.1 billion in June to $22.8 billion as imports from China fell much more than exports. That explains nearly the entire drop in the deficit.

U.S. exports were essentially flat in June. Industrial supplies and consumer goods exports fell while capital goods exports increased. Exports of services also decreased, mainly in transportation.