Exports Picking Up but Still Far from Prepandemic Levels

The trade deficit widened again in August as it neared a record high, to a seasonally adjusted $67.1 billion from $63.4 billion in July. That’s an increase of 5.9% and the worst reading since 2006. The trade balance is weak because depressed global demand continues to hurt U.S. exports, while imports have proved more resilient. Trade in services fell in August from July because of a decline in travel, but it remained in surplus at $16.8 billion. The deficit in goods increased to $83.9 billion.

Imports and exports both posted increases in August. Imports increased 3.2%, driven by more purchases of capital goods, consumer products and foreign-made vehicles. A lot of the strength in imports of consumer products reflects the restocking of inventories by retailers ahead of the holidays. Exports saw a smaller increase of 2.2%, with solid gains in crude oil, industrial supplies and materials, natural gas and soybeans. Exports of services fell as demand for travel and transport services remained subdued because of travel restrictions related to the COVID-19 outbreak.

Despite the improvement in July trade activity, overall trade volumes remain low. Imports are now 3% below their prepandemic level, while exports remain down 18%. The recent improvement in trade flows started in June as U.S. states began lifting restrictions on mobility and foreign-trade partners reopened their economies. While the modest rise is encouraging, trade volumes have a long way to go before they return to pre-COVID 19 levels.

Net exports will be a drag on third-quarter GDP growth, but that won’t prevent growth from bouncing back sharply after the strong contraction in the second quarter.

Sources: Department of Commerce, Trade Data