Trade Continues to Rebound

The trade deficit narrowed at the end of the third quarter, falling to a seasonally adjusted $63.9 billion in September from $67 billion in August — a decrease of 4.7%. Although there was some improvement in September, the deficit is wider than that seen before the recession. The trade balance is weak because depressed global demand continues to hurt U.S. export growth, while U.S. imports have proved more resilient. The services surplus remained unchanged at $16.8 billion, while the goods deficit decreased to $80.7 billion.

Both imports and exports rose in September. Imports rose just 0.5%, driven by more purchases of capital goods and foreign-made vehicles. Imports in general were held back by declines in inbound shipments of industrial supplies and consumer goods. Exports saw a larger increase of 2.6%, with gains in crude oil, industrial supplies and materials, natural gas, soybeans and telecommunications equipment. Exports of services rose, but demand for travel and transport services remains subdued because of travel restrictions related to the COVID-19 outbreak.

Travel exports will likely remain weak until next year. These exports will be very slow to recover until a coronavirus vaccine is widely distributed.

Despite the improvement in trade activity, trade volumes remain low. Imports are now 18% below a year ago on a three-month moving-average basis, while exports are down 8.8%. Trade flows improved somewhat since June as U.S. states began lifting restrictions on mobility, and foreign-trade partners reopened their economies. While the modest improvement is encouraging, trade volumes have a long way to go before they return to pre-COVID-19 levels.

Trade will likely continue to rebound in the fourth quarter, but rising cases of COVID-19 and renewed restrictions across the eurozone may weigh on U.S. exports. The bloc buys about 15% of U.S. exports.

Sources: Department of Commerce, Trade Data