The U.S. trade deficit narrowed to $70.1 billion in July from $73.2 billion in June. Total exports (goods and services) increased by 1.3% (+0.6% in June), while imports pulled back 0.2% (+2.2% in June).
Goods exports increased by 1.8% in July (0.2% in June). The gains were broad based and led by automotive vehicles, parts and engines (+5.3%), consumer goods (+4.5%, excluding automotive), and capital goods (+2.2%). Accounting for price changes, real goods exports rose by 1.0 %.
Goods imports decreased by 1.1% (compared to a 1.8% increase in June). Most product categories registered contractions, pulled down by consumer goods (-3.4%, excluding automotive) and industrial supplies and materials (-2.9%). Automotive vehicles, parts and engines (+3.8%) and other merchandise (+3.5%) were the main gainers for the months. Excluding price changes, real imports fell 1.4% in July.
Exports of services expanded by 0.1% on the month (1.7% in June), while imports of services grew by 5.5% (4.3% in June).
Key Implications
The U.S. trade deficit narrowed in July for only the second time this year. Even with the narrowing, imports were 14.8% above pre-pandemic (February 2020) levels, while exports were 3.9% higher.
While activity in the traded goods sector surged during the pandemic, services struggled. There’s still a long way to go for services trade to recover as both imports and exports are 1.0% and 7.1% below pre-pandemic levels, respectively.
The pandemic set off a shift in demand towards goods that is still in the process of rebalancing. Consumers have been moving spending back to services since March but normal is still a long way off. July’s data showed services spending made up 65.4% of consumer expenditures, down from 69.2% before the pandemic. As normalization continues the trade deficit should continue to narrow through the remainder of the year.
