Imports jump, widening the trade gap

September 4, 2024

The US trade deficit jumped to $78.8 billion in July, beating market expectations, as rising imports outpaced exports. That marks a 7.9% increase in the deficit, the largest one-month increase since April when importers hedged against new tariffs coming online in May. Wholesalers and retailers are stocking up ahead of the impending East Coast and Gulf Coast port strikes, set to start on October 1, 2024. Those ports handle 43% of US cargo imports, with meetings this week to set the stage for whether or not the contract is negotiated. The trade deficit now stands at its highest level since June 2022. The goods and services deficit has increased 7.7% year-over-year.

When accounting for inflation in trade prices for the month of July, the deficit increased by slightly more than the headline. Export prices rose by more than import prices; 0.7% compared to 0.1%.

Imports increased by 2.1%, or $7.1 billion, as both goods and services imports increased. Gains were broad-based, with the only exception being motor vehicles and parts imports, which fell on weak passenger cars. Dealers have been struggling to get cars off of lots after a build in inventories earlier in the year. Motor vehicle and parts retailers still saw increases in their inventories despite lower imports, up 1.4% in July.

Capital goods showed the largest gains at $3.3 billion. Computer accessories accounted for $2.4 billion of that alone, followed by a large civilian aircraft and aircraft parts delivery, with a combined total of approximately $900 million. Industrial supplies posted large gains at $2.9 billion. Nearly half of that was in nonmonetary gold, or any gold held as a non-reserve asset. Gold prices have been rising in response to uncertainty on multiple fronts. The most recent rise likely got a boost from the political uncertainty surrounding the US election and the threat of an escalation of hot wars in the Middle East and Europe. Another $1.4 billion was in finished metals and copper, materials used in high-tech manufacturing and construction. Consumer goods posted a healthy $600 million in gains after a weaker second quarter; gains in cell phones, artwork and household appliances offset some areas of weakness in jewelry and pharmaceuticals.

Imports of services increased by $0.8 billion during the month. Much of that was in charges for the use of intellectual property, transportation services and insurance. Travel imports decreased on a seasonally adjusted basis as people front-loaded their trips this year.

Exports increased by 0.5%, or $1.3 billion, less than a third of the pace of June. Weak exports for automotive and consumer goods more than offset increases in capital goods and industrial supplies. Exports of passenger cars plummeted $1.2 billion, with parts and accessories falling another $325 million. Consumer goods fell across a variety of products, down $812 billion in total. Capital goods were stronger; exports of semiconductors were up $1.6 billion. Aircraft rose $538 million. Industrial supplies were more mixed as stronger exports of crude oil, coal and natural gas were offset by processed petroleum products and chemicals. Exports of services also increased, up $0.6 billion. The largest gains were posted in government exports, maintenance and repair services, financial services and telecom services.

This report marks the release of the quarterly deficit figures by country for the second quarter. The deficit has narrowed with China for eight of the last nine quarters as companies continue to reorganize their supply chains in the wake of pandemic disruptions. The deficit also narrowed with Canada and Mexico, even as total trade with the two countries has been increasing. Deficits with Vietnam, Taiwan, the EU and South/Central America increased during the quarter, continuing the friendshoring trend. The July jump in the deficit was dominated by China and Canada, with a jump in the deficit with each country of $4.9 billion and $3.0 billion, respectively.