The U.S. trade deficit. shrank significantly in August as exports rose to record highs, suggesting that trade may have had little or no impact on economic growth in the third quarter.
A smaller-than-expected trade deficit reported by the Commerce Department on Tuesday added to data on the labor market and consumer spending that suggested the economy remained strong last quarter.
This economic strength may not affect expectations that the Federal Reserve will cut interest rates again next month. However, it reinforces the view that the U.S. central bank no need to chase another half percent rate reduction.
"This report shows that net trade supported GDP growth in August," said Carl Weinberg, chief economist at High Frequency Economics. "A combination of the July and August figures shows that net trade has been stable so far in the third quarter, providing no significant addition or subtraction to GDP growth so far." The trade deficit shrank 10.8% to $70.4 billion, which was the smallest in five months, from a revised $78.9 billion in July, the Commerce Department's Bureau of Economic Analysis said.
Economists polled by Reuters forecast the trade deficit to shrink to $70.6 billion from $78.8 billion previously reported in July.
Exports rose 2.0% to a record $271.8 billion. Exports of goods rose 2.5% to $179.4 billion, the highest level since September 2022. This was driven by a $1.7 billion increase in capital goods to the highest level, largely reflecting telecommunications equipment, civil aircraft, computer accessories and other industrial machinery. However, semiconductor exports declined.
Exports of consumer goods rose $1.0 billion, driven by pharmaceutical preparations. Exports of industrial supplies and materials rose, while a $1.1 billion decline in crude oil was more than offset by a $1.5 billion increase in non-monetary gold. Exports of automotive vehicles, parts and engines increased, driven by exports of passenger cars. Non-petroleum exports were the highest on record, as were other items. Services exports rose $0.9 billion to a record high of $92.3 billion amid increases in travel and government goods and services. However, the export of transport services decreased.
Imports decreased 0.9% to $342.2 billion. Imports of goods fell 1.4% to $274.3 billion, dragged down by a $3.9 billion drop in industrial supplies and materials and a $1.2 billion drop in non-monetary gold.
Crude oil imports decreased by $1.0 billion. Imports of motor vehicles, parts and engines fell $1.3 billion, depressed by passenger cars. However, imports of other goods were the highest since December 2021. Imports of goods rose in previous months, likely as businesses rushed to bring in shipments ahead of higher tariffs and a strike by port workers last week, which lasted only three days.
Imports of services rose $0.7 billion to a record high of $67.9 billion amid increases in travel and fees for the use of intellectual property. However, the import of transport services decreased.
When adjusted for inflation, the goods trade deficit decreased 8.9% to $88.6 billion. The average real goods trade deficit for July and August was almost the same as the average for the second quarter.
Trade has reduced Gross Domestic Product (GDP) for two consecutive quarters. Growth estimates for the third quarter are now as high as 3.2% annual rate. The economy grew at a rate of 3.0% in the April to June quarter.
