Trade deficit narrows less than expected

August 6, 2024

The US trade deficit narrowed to $73.1 billion in June, slightly less than markets expected. That marks a 2.5% decrease in the deficit and the largest one-month decrease in the deficit since August 2023. The narrowing was driven by a jump in exports that more than offset an increase in imports. The deficit has still increased by 5.6% year-over-year as import growth has outpaced export growth.

Exports increased by 1.5%, or $4.0 billion, after falling in May. Exports increased across all categories of goods, with the largest increases in capital goods such as civilian aircraft and computers and industrial supplies such as natural gas and fuel oil. Orders for passenger cars and trucks rebounded, offsetting declines in exports of automotive parts and accessories. Agricultural exports increased on animal feed grains, while consumer goods were more mixed. Most categories were flat on the month, but there were some increases in gem diamonds, cell phones and pharmaceuticals.

The only category of exports to show declines in the month of June was services, with most of that decrease being driven by fewer foreign visitors. Travel exports declined by $0.4 billion. The strong dollar makes it more expensive for tourists from abroad to travel to the US.

Imports increased by 0.6%, or $2.1 billion, erasing the declines seen in May. The initial rush to get imports in under the wire of new tariffs and anticipated summer supply chain disruptions has dissipated, leading to slower imports than earlier in the year. The early ordering is still being stocked up, with retail inventories jumping 0.7%. Auto dealer inventories jumped 1.8% and gained 22.2% year-over-year; that is in spite of lower auto imports in the month of June. A cyber attack on some 50,000 vehicle dealers in June exacerbated the rise in dealer inventories. Dealers literally could not complete transactions.

Imports of consumer goods were weak outside of pharmaceutical preparations, though that category alone added $3.2 billion in imports in June. The largest declines in imports were in industrial supplies, crude oil, nuclear fuels and iron and steel.

Imports remained in the positive column due to capital goods imports. Large increases in semiconductors, telecommunications equipment and computers more than offset declines in civilian aircraft and drilling equipment. Imports of services increased but were weak. Increases in travel services as well as maintenance and repair services offset decreases in transport. The flipside of the strong dollar is that it makes it cheaper for US tourists to travel abroad.

June marks a return to the trend of friend-shoring. The trade deficit narrowed with China and the European Union, were stable with Mexico and Canada and increased via Taiwan, Singapore, Brazil and Chile.