Trade Deficit Narrows Again in June, a Trend Likely to Continue

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The trade deficit fell again in June to a six-month low, hitting a seasonally adjusted $79.6 billion, versus $84.9 billion in May. The trade gap has narrowed over the past three months thanks to slowing domestic demand, and will likely continue on this path in coming months.

Exports rose for the fifth consecutive month in June. Total exports rose 1.7% due to stronger demand overseas for U.S. goods, with industrial supplies and materials and food and beverages leading the monthly gain. Service exports rose 1% on stronger inbound tourism and demand for transport. Tourism exports are still 34% below prepandemic levels, so there is plenty of room for them to see stronger growth over the coming months. On the imports side, the 0.3% decrease was driven by a slump in imports of auto parts. Slower domestic demand in general has begun to weigh on import growth. Services imports rose 0.7% on gains in both business services and travel. The U.S. has historically run a surplus in services trade, though that has declined throughout the pandemic. A rebound in services activity should boost the surplus and help narrow the broader trade deficit.

Trade flows will be more balanced going forward. The slowdown in import growth alongside the resilience of export growth, despite rising economic headwinds abroad, means smaller trade deficits. With the Federal Reserve poised to move monetary policy into restrictive territory in the coming months, and inflation remaining high through the end of 2022, the ongoing slowdown of the U.S. economy should dampen total trade flows in the second half of the year.

Source: Department of Commerce, Trade Data