Trade deficit narrows after pre-tariff surge in imports

December 5, 2024

The US trade deficit fell 11.9% in October to $73.8 billion; that's more than expected. Imports plummeted following September’s buying surge. Manufacturers and retailers were stocking up to hedge against the threat of a port strike on the East Coast and to avoid another round of tariffs levied on China. October’s rebound was the biggest improvement in the trade balance since March 2023.

The trade deficit with the European Union improved by $6.7 billion, far and away the biggest advance since the data has been collected and due almost entirely to fewer imports. The deficit with China fell following last month’s scramble to avoid new tariffs.

Imports fell 4%, affected by the drop in goods imports. That marks the fourth largest decline since the end of the Great Financial Crisis. Declines were broad-based. Capital goods fell $7.5 billion, accounting for nearly half the decline. Computers and semiconductors were the hardest hit among capital goods. Crude oil imports lost ground along with automotive vehicles and parts. Consumer goods were dented by last month’s pre-holiday surge. Bright spots appeared in apparel and footwear as well as cellphones, which bounced back after a weak September.

Imports of services rebounded in October with the biggest increase since April 2022. Travel, transport and intellectual property were the main beneficiaries. Tourism abroad has become cheaper with a stronger dollar, while a lot of services are being offshored.

Exports fell 1.6%, the largest decline in eight months. Soft growth among the main US trading partners and the strong dollar are to blame. As with imports, capital goods led the way, falling $3.9 billion. Automotive vehicles and parts followed close behind, with passenger vehicles and trucks and buses hit equally hard. Industrial supplies declined but were partially offset by crude oil exports. Consumer goods were weak across the board. Exports of services rose modestly; we continue to run a surplus in services.

In real terms, the goods deficit fell less than the headline suggests. The nominal goods deficit declined by 9.5%, while the real goods deficit, which considers changes in import and export prices, declined by 7.3%. Though this decrease is significant, it means the impact on GDP will not be as big as the headline.

Revisions to data over the summer suggest that the services surplus was larger than estimated, suggesting a modest upward revision to third quarter GDP growth. The economy now looks like it expanded at a 3.0% pace in the third quarter, instead of the 2.8% reported last week.