U.S. Goods Trade Deficit Widens On Imports; Inventories Increase

  • The U.S. trade deficit in goods increased in June as imports continued to rise amid strong economic activity, suggesting trade likely remained a drag on growth in the second quarter. The U.S. economy has rebounded more quickly from the pandemic compared to its global rivals, thanks to massive fiscal stimulus, low interest rates and vaccinations against COVID-19. But bottlenecks in the supply chain have hampered manufacturers' ability to boost production, drawing in more imports. 
  • "The widening in the advance nominal goods deficit in June is further evidence that net exports will be a drag on second- quarter GDP," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania. 
  • The goods trade deficit increased 3.5% to $91.2Bn last month, the Commerce Department said on Wednesday. Imports of goods advanced 1.5% to $236.7Bn. There were increases in imports of food, industrial supplies and capital goods. 
  • However, imports of motor vehicles and consumer goods fell. While that could hint at a possible moderation in consumer spending in the months ahead, the drop could reflect a global shortage of semiconductors, which has weighed on the production of motor vehicles and some household appliances. 
  • Spending during the pandemic shifted to goods from services, with Americans cooped up at home, but with nearly half of the United States population fully vaccinated against the coronavirus, demand for services is picking up.  That has raised optimism among some economists that fewer goods will be imported in the coming months and allow the trade gap to shrink. However, the Delta variant of the virus is driving a resurgence in new infections across the country, which could limit demand for services. 
  • "We expect the overall trade deficit to narrow in the coming months as consumers rotate their spending towards services and greater vaccine diffusion abroad encourages stronger export growth," said Mahir Rasheed, a U.S. economist at Oxford Economics in New York. "However, risks from sticky supply chain disruptions and the rapid spread of the Delta variant could slow trade flows."

(Source: Reuters)