Widening trade deficit due to strong domestic demand

Although the trade deficit has widened in recent months, the increase is largely due to the strength of imports rather than the weakness of exports. Our calculations suggest that exports increased at a very healthy double-digit annualised pace in the second quarter. But imports are expanding at an even faster pace. Given that the dollar has been broadly unchanged over the past year, the strength of imports presumably reflects a surge in domestic demand, which is actually an encouraging development.