The latest trade figures confirm that both exports and imports finally began to rebound in June, and we could see continued rapid gains over the coming months as trade catches up with the strong initial rebound in final demand. However, with key US exports such as travel services and commercial aircraft shipments likely to remain depressed for a while to come, the trade deficit is unlikely to continue narrowing over the coming months.
Rebound in trade lagging the rest of the economy
- The latest trade figures confirm that both exports and imports finally began to rebound in June, and we could see continued rapid gains over the coming months as trade catches up with the strong initial rebound in final demand. However, with key US exports such as travel services and commercial aircraft shipments likely to remain depressed for a while to come, the trade deficit is unlikely to continue narrowing over the coming months.
- The trade deficit fell in June, to $50.7bn from $54.8bn, as a 9.4% rebound in exports outpaced a 4.7% rise in imports. Both exports and imports were driven higher by sharp increases in autos and capital goods shipments as factories restarted, with imports of consumer goods also posting a large rise. In real terms, goods exports rose by an even stronger 12.2%, easily outpacing a 4.1% rise in goods imports.
- The trade deficit would have increased in June had it not been for a $5.9bn drop back in imports of non-monetary gold. Those shipments surged during the initial stages of the pandemic, which was presumably more a reflection of a flight to safety amid the chaos in financial markets. Excluding that distortion, the bigger picture is that both exports and imports are rebounding in unison as global supply chains restart.
- While goods trade has begun to rebound, it is lagging the recovery in consumption already seen in the economy. US auto sales, for example, were around 15% below pre-virus levels in July, but trade in autos is running over 30% below pre-pandemic levels. (See Chart 1.) As a result, both exports and imports could continue rising sharply over the coming months, even as consumption growth slows. The larger size of the latter suggests net trade will switch back to being a drag on GDP growth in the third quarter, after a modest positive contribution in the second quarter. But that should be more than offset by a stronger contribution from inventories, as the rebound in production catches up with consumption.
- Less positively, trade in services only edged higher in June, with travel services still massively depressed amid ongoing restrictions on international travel. With other key US exports also dealt a lasting blow by the pandemic, including commercial aircraft, it seems likely that exports will continue to lag the recovery in the broader economy.
Chart 1: Motor Vehicle Trade ($bn)
Source: Census Bureau
Table 1: International Trade
Bal. (ex petrol)
Michael Pearce, Senior US Economist, +1 646 538 3163, firstname.lastname@example.org