Trade Likely Added to GDP Growth in Q2

• The goods trade deficit narrowed in June to $98.2 billion, the smallest deficit this year, from $104.0 billion in May, according to the advance estimate from the U.S. Department of Commerce.
• The value of nominal goods exports rose 2.5% on a month-over-month basis while nominal goods imports fell 0.5%.
• Trade likely contributed to GDP growth in the second quarter.

The advance nominal-goods trade deficit in June narrowed to the lowest level this year after peaking in March 2022. The goods trade deficit fell 5.6% to $98.2 billion last month from $104.0 billion in May, according to data from the U.S. Department of Commerce. This was more than the consensus expectation for a narrowing to $103 billion. Exports rose 2.5% on the month while imports fell 0.5%. The trade deficit declined in every month in the second quarter of 2022.

Export growth in June was driven by gains in industrial supplies. Industrial supplies (including petroleum and petroleum products) exports rose 6.5% over the month and 45.4% on a year-over-year basis. Exports in dollar terms rose 24.6% in June from a year ago. Imports fell by a small 0.5% in June from May driven by a 7.8% decline in automotive goods imports. Imports in dollar terms in June were 18.4% higher than a year ago.

The trade deficit widened to record levels during the pandemic as the consumer-led economic recovery in the U.S. drove the global economic recovery. A shift in consumer spending patterns away from services to durable goods drove strong imports while global supply-chain disruptions and a more slowly growing global economy were negatives for exports. The U.S. dollar’s remarkable run in 2022 also contributed to the widening in the trade deficit. 

As the Fed removes monetary policy accommodation and U.S. economic growth slows, imports will likely significantly decrease through 2022 and 2023. The advance GDP report for the second quarter to be released tomorrow will likely show that trade was a positive for GDP growth.

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