Economic Forecasts

Trade Deficit Widens to Second-Largest on Record

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

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The trade deficit widened in May as U.S. consumers and businesses increased their purchases of imported products and materials, hitting a seasonally adjusted $71.2 billion, from a revised $69.1 billion in April — a rise of 3.1%. The trade deficit will likely remain wide as the consumer-driven recovery in the United States runs ahead of the global economic rebound. That said, progress on vaccinations and consumer spending beginning to shift away from goods towards services could cause the deficit to narrow in coming months. The potential infrastructure package that Congress may pass in the second half of the year would likely add to the trade deficit, too.

Goods exports were mixed in May, while imports rebounded. Industrial supplies and materials sales rose just 0.3%, while consumer-goods exports surged 5.8%. Altogether, exports of goods rose by 0.3%. Growth could have been stronger if not for a 4.6% decline in auto exports. The global semiconductor shortage has affected both automotive imports and exports over the past few months. Imports rose 1.2% in May, with industrial supplies and materials up 5.2%, thanks to large gains in crude and fuel oil. Imports will weaken a bit through the rest of the year as consumer spending shifts back to the much larger services sector.

Services trade continues to improve but is still below prepandemic levels. Exports rose 1.5% and imports rose 1.8%. Exports have risen in nine of the past 12 months, while imports have risen in all but one. Both imports and exports of services remain constrained by weakness in travel and transportation. Services trade should pick up significantly later this year, as the global economy reopens and international travel restrictions continue to be relaxed.

Sources: Department of Commerce, Trade Data

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