Drop in imports drive trade improvement

The U.S. international trade deficit narrowed by 7.3% to $69.0 billion, in line with expectations. Imports fell more rapidly than exports. That is a large narrowing from the month of April but leaves the 3-month moving average flat; it has been hovering between $68 billion and $70.5 billion since January. The trade deficit has narrowed 22.8% year-over-year.

Imports fell dramatically from both goods and services. Consumer goods such as pharmaceuticals and cell phones decreased dramatically during the month, along with industrial supplies stemming from nonmonetary gold and organic chemicals. Just capital goods increased, buoyed by a large jump in computer imports.

The fall in goods imports did not come from inventories this month.  Inventories grew on a seasonally adjusted basis due to a 2.9% jump in motor vehicle and parts inventories. Dealers were still restocking after the acute shortages emerging form the pandemic. Wholesale and non-auto inventories were flat or negative.  

Both travel and transport imports decreased, despite May being another record-breaking month for absences due to vacation. That is most likely due to comparisons to March and April, when travel soared during Spring Breaks. Travel bookings abroad have soared, which will boost service sector imports this summer.

Exports fell during the month of May, but not enough to offset the fall in imports. Commodity exports such as soybeans, crude oil, petroleum, and natural gas all fell, while passenger cars and services exports increased.

There was not a singular region or trading partner driving the change. The deficit with China and Mexico grew slightly while deficits with the E.U., Vietnam, Germany, and Canada shrank. A global economic slowdown is likely to keep exports subdued.