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The trade deficit expanded to its widest level since early 2022. The U.S. trade deficit in goods and services hit a seasonally adjusted $84.4 billion in September, after an upwardly revised $70.8 billion in August – a 19.2% monthly increase. The trade deficit is a measure of the difference between what the U.S. buys from foreign nations and what it sells overseas.
The policies implemented by the next administration will have a significant impact on the trade deficit’s path, but net imports are likely to remain a headwind to domestic economic growth. (In GDP calculations, imports detract from total growth, while exports add to it.) The dollar’s strength will likely support import growth while softening economic activity in advanced economies will weigh on sales of U.S. goods abroad.
Look for American exports to weaken a bit over the next few months. Total exports fell 1.2% in September from August. The decline was fairly concentrated, with crude oil accounting for over 90% of the pullback in industrial supplies exports in September. Civilian aircraft also saw a substantial decline during the month, accounting for nearly 90% of the drop in exports of capital goods. Consumer goods exports fell on lower pharmaceutical sales.
Exports have contended this year with a weaker global backdrop and a stronger dollar, which makes U.S. goods relatively more expensive abroad. With China’s economy yet to meaningfully stabilize and growth across the Eurozone showing some signs of fragility, the strength in U.S. exports seen earlier this year is unlikely to return.
Solid domestic demand is contributing to import growth. Total imports rose 4.1% in September from the previous month. Total goods imports rose 4%, supported by a 4% increase in consumer goods and a 6% increase in capital goods. That said, every major category of goods posted a gain in September. Imports have grown more quickly than exports so far this year, which is likely a reflection of the U.S. economy outperforming most of its major trading partners. The fastest growth among imports has been in capital goods, partly because of the U.S. tech industry’s hunger for the high-powered chips necessary to run new artificial intelligence applications. Household spending on imported consumer goods, foods and beverages has also seen double-digit growth over the past year.
Source: Department of Commerce, Trade Data
