Economic Forecasts

Demand for U.S. Goods Narrows Trade Deficit

Kiplinger's latest forecast on the direction of the trade deficit

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The trade deficit narrowed a bit in July on the back of rising demand for U.S. goods and weaker domestic demand for imports, falling to a seasonally adjusted $70.1 billion, from a revised $73.2 billion in June — a decline of 6.7%. Still, the trade deficit will likely remain wide as the consumer-driven recovery in the United States runs ahead of the global economic rebound.

Rising demand abroad helped with U.S. goods exports in July. They rose 1.3%, with every major category advancing. Capital-goods exports rose 2.2% after two consecutive months of declines. Auto exports surged 5.3%, while consumer-goods exports rose a solid 4.5%. Imports grew more slowly in July, partly because of ongoing bottlenecks in global supply chains and shipping. Total imports fell only 0.2%, thanks to strength in services imports. Goods imports slid 1.2% during the month. Every major category saw a decline in imports in July, with the sole exception being auto imports. Consumer-goods imports fell 3.4%, reflecting the slowdown in consumption growth in recent months, as the effects of the earlier fiscal boost faded.

Services trade continues to improve, with both imports and exports posting gains in July. But again, imports heavily outpaced exports, 5.5% to just 0.1%. Both imports and exports of services remain constrained by travel disruptions. Imports of travel services also picked up quite strongly, in contrast to the slight fall in exports in this category. Consumers shifting from buying stuff to once again spending on experiences was reflected in the 22.6% jump in travel-services imports. The stricter entry restrictions on tourists visiting the United States, compared with elsewhere, help explain why travel exports are rebounding far more slowly than travel imports.

Net trade is on track to make a small contribution to GDP growth in the third quarter. July’s trade data suggest net exports won’t significantly boost third-quarter GDP. That said, it will depend on how trade evolves during the remaining two months of the quarter, amid ongoing supply issues and capacity constraints.

Sources: Department of Commerce, Trade Data

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