Trade Picking Up, but Still Far From Pre-COVID Levels
Kiplinger's latest forecast on the direction of the trade deficit.
The trade deficit widened in July as imports outpaced exports. The deficit in goods and services expanded to a seasonally adjusted $63.6 billion, from $53.5 billion in June — an increase of 18.9%. Trade in services remained in surplus at $17.4 billion, but it shrank to its lowest level since 2012, as many foreign visitors haven’t been able to travel to the United States. The nominal goods deficit increased to $80.9 billion. However, the trade gap should narrow over the next few months, now that the dollar has weakened recently. That should support exports.
Both imports and exports rose in July. About a third of the increase in both was due to a rebound in motor-vehicles trade, as supply chains disrupted by COVID-19 started to recover. Imports increased 10.9%, driven largely by more purchases of capital goods, consumer products and foreign-made vehicles. Exports saw a smaller increase of 8.1%, with gains across the board, including crude oil, plastic materials, natural gas and soybeans. Exports of services rose 0.7%, as demand for travel and transport services remained subdued.
Despite the improvement in July, trade volumes remain low. Total exports through July are down 17.4% year-over-year, against a 13.8% decline in imports. While the modest rise in trade volumes is encouraging, they have a long way to go before they return to pre-COVID-19 levels.
Trade flows should gradually pick up over the next few months, as long as the spread of the virus remains under control. Services trade, however, will take longer to recover, with borders still partly closed to and from the United States.
Sources: Department of Commerce, Trade Data
- 1Kiplinger’s Economic OutlooksRegularly updated insights on the economy’s next moves.
- 2GDP: -4.9% growth in 2020, 3.8% in 2021Kiplinger’s latest forecast for the GDP growth rate
- 3JOBS: States are reopening, but workers will come back slowlyKiplinger’s latest forecast on jobs
- 4INTEREST RATES: 10-year T-notes staying below 1.0% for a whileKiplinger’s latest forecast on interest rates
- 5INFLATION: 1.2% through '20, from 2.3% at end '19Kiplinger’s latest forecast on inflation
- 6BUSINESS SPENDING: Down 10% to 20% in '20Kiplinger’s latest forecast on business equipment spending
- 7ENERGY: Crude oil trading from $35 to $40/barrel as fall arrivesKiplinger's latest forecast on the direction of energy prices
- 8HOUSING: Single-family starts down 6.6% in '20Kiplinger's latest forecast on housing starts and home sales
- 9RETAIL SALES: Ending the year 6% higher than at the startKiplinger’s latest forecast on retail sales and consumer spending.
- 10TRADE DEFICIT: Widening 3% in ’20 - currently readingKiplinger's latest forecast on the direction of the trade deficit.