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The trade deficit is growing again, for the first time in six months. The U.S. trade deficit in goods and services rose to a seasonally adjusted $73.3 billion in September from $65.7 billion in August – an 11.6% increase. The trade gap had narrowed for much of this year as the shift in consumer spending toward services and experiences, at the expense of goods, has dampened demand for imports. September’s increase reversed that long-running trend. A strong dollar, supported by a hawkish Federal Reserve, and slowing demand abroad will keep exports restrained in coming months. This means that modest increases to the trade deficit are likely in the fourth quarter, which in turn will act as a drag on GDP growth.
Exports and imports reversed the pattern seen in recent months. Exports declined for the first time in eight months in September, while imports rose for the second time in six months. Total exports fell 1.1% because of lower outbound shipments of industrial supplies and materials, food and beverages. On the imports side, the 1.5% increase can be traced to gains in imports of capital goods and consumer goods. Travel imports, a measure of money spent by Americans abroad on goods and services, also rose during the month. The services surplus narrowed to $19.5 billion, which puts it about 20% below where it stood before the pandemic. Services trade, while a smaller share of the trade balance than goods, is still important for the U.S. deficit since the country has historically run a surplus in services.
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Trade won’t contribute much to fourth quarter GDP. The narrowing of the trade deficit between March and August contributed to real GDP growth in the third quarter, but September data suggests that trade won’t be a significant contributor to GDP growth in the last quarter of the year. While a drag on GDP, this will help temper inflation in the U.S.
Net exports should boost GDP growth in the third quarter. The improvement in the trade deficit over the past few months means that international trade will make a significant contribution to U.S. GDP growth in the third quarter.
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