Trade a Drag on Q2 GDP Growth
- The U.S. goods and services trade deficit increased in May both on the month and over the past year.
- The goods deficit increased as goods exports fell more than imports.
- The services surplus increased in May, with services exports rising slightly more than imports.
- PNC expects the trade deficit to increase in the near term but remain below its record level in 2022.
The total trade deficit rose in May as the goods deficit widened more than the services surplus increased. The U.S. trade deficit in goods and services inched up 0.8% in May to $75.1 billion from $74.5 billion in April (revised downward from $74.6 billion); this was below the consensus expectation of $76.5 billion. The trade deficit jumped 8.6% in April. The total trade deficit has been widening from $60 billion in August 2023, but remains well below the record $102 billion deficit in March 2022. On a year-ago basis the May trade deficit was 13.6% larger, a faster pace than in April, but slower growth than in March.
The goods deficit increased 0.9% in May from April to $100.2 billion as goods exports fell more than goods imports; the goods deficit was at its highest level in almost two years. There was a broad-based retreat in goods exports, except for a 1.5% increase for consumer goods. The smaller decline in goods imports was led by imports of capital goods (down 0.2%), autos (down 3.5%) and consumer goods (down 3.1%), while imports in other categories increased in May.
The services surplus was up 1% in May from April to $25.1 billion. Services exports increased slightly more than services imports on the month. Services exports and imports were up across most categories in May; inbound travel to the U.S. led services export growth.
PNC expects the trade deficit to increase slightly in the near term as the labor market remains strong and consumers continue to purchase from abroad. With larger trade deficits in April and May, trade is likely to be a drag on real GDP growth in the second quarter. Drags from elevated interest rates globally and higher shipping costs due to conflict in the Middle East will likely weigh on goods trade in the near term. The strong U.S. dollar will weigh on exports and support imports in 2024. PNC expects the trade deficit to pick up in 2024, weighing on growth, but it will remain below the record deficit in March 2022.
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