Trade Deficit
The U.S. trade deficit saw a significant increase in May, primarily driven by a decline in exports, according to data released by the Commerce Department’s Bureau of Economic Analysis.
The trade gap widened by 18.7 percent, reaching $71.5 billion, exceeding economists’ forecasts which had anticipated a deficit of around $71.0 billion. This marks a notable rise from April, when the trade deficit was revised downward to $60.3 billion from an earlier estimate of $61.6 billion.
Despite the rising deficit, there were signs that imports slightly decreased, falling by 0.1 percent to $350.5 billion. This slight dip in imports suggests that trade could contribute positively to economic growth in the second quarter, potentially helping to offset slower consumer spending. The goods trade deficit also expanded by 13.0 percent, rising to $97.5 billion in May.
The detailed breakdown of imports revealed mixed trends. While imports of consumer goods declined by $4.0 billion, impacted by reduced purchases of textiles, apparel, household goods, toys, games, and sporting equipment, imports of pharmaceutical preparations increased.
There were also declines in imports of industrial supplies and materials, especially finished metal shapes. However, some sectors, such as motor vehicles, parts, and engines, saw imports increase by $3.4 billion, and capital goods imports rose slightly due to higher computer imports, despite a $2.8 billion drop in computer accessories.
On the services front, imports dropped marginally by $0.1 billion to $72.8 billion, reflecting decreases in transportation and travel services. This was partly balanced by increases in other business and maintenance and repair services.
Exports faced a notable decline of 4.0 percent, falling to $279.0 billion. Goods exports dropped 5.9 percent to $180.2 billion, with significant decreases in industrial supplies and materials exports, largely due to lower shipments of non-monetary gold, natural gas, and finished metal shapes.
Capital goods exports fell by $1.9 billion, driven by reduced exports of semiconductors, civilian aircraft engines, and telecommunications equipment. However, exports of computer accessories and consumer goods, especially pharmaceutical preparations, showed some growth.
Service exports also fell slightly by $0.2 billion to $98.8 billion, with travel and transportation services bearing the brunt of the decline. Yet, there were gains in exports related to charges for intellectual property use and other business services.
Overall, the trade deficit’s widening in May reflects the complex interplay between weaker exports and slight import declines. President Donald Trump’s tariff policies have introduced distortions in trade patterns, with businesses and consumers accelerating imports to avoid higher future costs.
Economists caution that these effects will likely continue to influence trade data in the near term as the economy adjusts to these changes.
The trade deficit had a significant negative impact on the U.S. economy in the first quarter, cutting 4.61 percentage points from GDP growth and contributing to a 0.5 percent annualized decline in economic output during that period.
While trade is expected to provide a boost to growth in the second quarter, this is likely to be partially offset by ongoing weakness in consumer spending, indicating a cautious outlook for the overall economy.
