The U.S. trade deficit narrowed sharply in August as exports increased to a record high, suggesting trade could have little or no impact on economic growth in the third quarter.
The smaller-than-expected trade gap reported by the Commerce Department on Tuesday added to data on the labor market and consumer spending in suggesting that the economy remained on solid footing last quarter.
The economy’s strength likely has no impact on expectations that the Federal Reserve will cut interest rates again next month. It, however, reinforced views that the U.S. central bank did not need to pursue another half-percentage point rate reduction. Economists at Goldman Sachs maintained their forecast for gross domestic product to rise at a 3.2% annualized rate in the July-September quarter after the trade data.
“This report says that net trade supports GDP growth in August,” said Carl Weinberg, chief economist at High Frequency Economics. “Putting together July and August figures suggests that net trade is flat so far in third quarter, making no significant addition or subtraction to GDP growth so far.” The trade gap contracted 10.8% to $70.4 billion, the smallest in five months, from a revised $78.9 billion in July, the Commerce Department’s Bureau of Economic Analysis said.
Economists polled had forecast the trade deficit would narrow to $70.6 billion from the previously reported $78.8 billion in July.
Exports increased 2.0% to a record $271.8 billion. Goods exports surged 2.5% to $179.4 billion, the highest level since September 2022. They were boosted by a $1.7 billion rise in capital goods to a record high, mostly reflecting telecommunications equipment, civilian aircraft, computer accessories as well as other industrial machinery.
But exports of semiconductors fell.
Consumer goods exports increased $1.0 billion, lifted by pharmaceutical preparations. Exports of industrial supplies and materials increased as a $1.1 billion drop in crude oil was more than offset by a $1.5 billion rise in nonmonetary gold.
Automotive vehicles, parts and engines increased, driven by passenger car exports. Non-petroleum exports were the highest on record, as were those of other goods.
Exports of services increased $0.9 billion to an all-time high of $92.3 billion amid rises in travel as well as government goods and services. But exports of transport services fell.
Imports decreased 0.9% to $342.2 billion. Goods imports dropped 1.4% to $274.3 billion, pulled down by a $3.9 billion decline in industrial supplies and materials as well as a $1.2 billion decrease in nonmonetary gold.
Crude oil imports fell $1.0 billion. That reflected lower prices as well as quantities. Imported crude oil prices averaged $74.28 per barrel in August compared with $75.96 in July.
Motor vehicles, parts and engines imports decreased $1.3 billion, weighed down by passenger cars. But imports of other goods were the highest since December 2021. Goods imports had surged in the prior months, likely as businesses rushed to bring in shipments in anticipation of higher tariffs as well as a strike by dockworkers last week, which lasted only three days.