Capital goods help shrink trade deficit

October 8, 2024

The US trade deficit plummeted to $70.4 billion in August, nearly an 11% drop, as importers finished early stocking. Rising exports and falling imports contributed to the shrinking deficit, the largest one-month drop in 18 months. Import and export prices during the month are unlikely to sway the overall number that feeds into GDP. The deficit has still increased 8.9% since last year.

Wholesalers and retailers have been stocking up since April on supply chain worries; new tariffs, the resolved US port and Canadian rail strikes and a record-breaking hurricane season are all factors. The hurricane season is still upon us and will increase demand in the trucking industry; this comes at a time when capacity in trucking is already strapped for the holidays, which could make domestic shipping more costly or cause delays. The decline in the deficit this month erased earlier increases; the deficit now stands at its lowest level since March of this year.

Imports decreased 0.9%, or $3.9 billion, despite a fairly large increase in imports of services. Services imports increased $0.7 billion on travel and intellectual property expenses. Imports of consumer goods increased slightly; pharmaceutical preparations were the main drivers. All other non-agricultural import categories dropped, the largest being industrial supplies, down $3.9 billion alone. That included finished metals, crude oil and petroleum-related products. Automotives were second in line; passenger cars fell $1.1 billion. Capital goods were essentially flat as a large drop in computer accessories and semiconductors was offset by stronger orders for computers and aircraft engines.

Exports increased 2.0%, or $4.4 billion, the largest increase since February. A weaker dollar in the wake of the Federal Reserve beginning its rate-cutting cycle should support exports moving forward. Exports were strong across the board. There may be some strike effects; exporters were eager to push their products out the door before the port strike.

Capital goods were the strongest category, up $1.7 billion. Gains were broad-based. Increases in exports of telecom equipment, aircraft and computers more than offset declines in chip exports. Consumer goods followed at $1.0 billion; nearly all of that was pharmaceutical exports. Industrial supplies followed closely at $0.9 billion; fuel oil, petroleum and natural gas were all up. Finally, exports of passenger cars, engines and trucks combined increased $0.8 billion.

Imports of nonmonetary gold were a major driver, down $1.2 billion. That does not factor into the GDP calculation. However, there was a nearly exact offsetting increase in nonmonetary gold exports that do not factor into the GDP calculation either, so the overall direction is still downward on the trade deficit.

According to the monthly data by country, trade balances improved in all regions of the world in August. One month does not make a trend, especially in the country-by-country data. That being said, the largest improvement came from Pacific Rim countries. It was across the board: Improvements showed up in China, Japan, South Korea, Malaysia, Singapore and Taiwan. Deficits with other major trading partners such as Canada, the E.U., Brazil and India also declined.