US Trade Deficit Narrows as Domestic Consumer Demand Slows

After widening over the past two months, the U.S. trade deficit narrowed in June as exports ticked up and cooler demand slowed imports. 

Data from the Bureau of Labor Statistics showed that the U.S. trade deficit dropped 2.5% from the prior month to come in at $73.1 billion. Economists were expecting it to drop a bit further to $72.5 billion.

Exports increased by $3.9 billion, helping to drive the deficit lower, with overseas sales of aircrafts, computers, semiconductors, and petroleum products leading the increases.

Falling Trade Deficit Could Boost GDP

One factor contributing to the narrower trade deficit was that there were fewer buyers in the U.S. due to a slowing economy. June imports increased by 0.6%, coming as retail sales began showing signs of softening, while exports jumped 1.5% over the previous month.

“We suspect cooler domestic demand, amid a moderating pace of consumer spending and business investment, will ease imports in the remainder of the year,” wrote Wells Fargo economists Shannon Seery Grein and Nicole Cervi.

A narrowing trade gap could help improve the U.S. Gross Domestic Product (GDP), which surprised economists by improving to 2.8% for the second quarter.  The trade deficit helped drive down GDP growth by more than half-a-percentage-point in both the first and second quarters of this year, according to the Wells Fargo note.

“The softer pace of import growth, if sustained, will help trade turn back into a neutral factor on overall GDP growth,” the Wells Fargo economists said.