Trade Will Be a Tailwind to GDP Growth in the Second Half of 2022

• The goods trade deficit narrowed in July to $89.1 billion, the smallest deficit in nine months, from $98.6 billion in June, according to the advance estimate from the U.S. Department of Commerce.
• The value of nominal goods exports fell 0.2% in July to $180.9 billion, while nominal goods imports fell 3.5% to $270 billion.
• PNC forecasts for the trade deficit to fall further this year, contributing to real GDP growth in the second half of the year.

The goods trade deficit contracted for the fourth straight month in July. The goods trade deficit shrank 9.7% to $89.1 billion last month from $98.6 billion in June, according to data from the U.S. Department of Commerce. Nominal goods exports fell 0.2% on the month while nominal goods imports fell 3.5%. 

Industrial supplies (including petroleum and petroleum products) exports fell 2.3% over the month, consumer goods fell 3.4%, and automotive goods were up 6.3%. Food and beverage exports were down 8.1% and capital goods exports increased 4.4%. Nominal goods exports in July were up 22.9% from a year ago. 

Imports of consumer goods fell 10.4% in July, food and beverage imports declined 5.3%, industrial supplies imports dropped 2.9% while automotive goods imports rose 5.8% on the month. Despite the decline in July, nominal goods imports in July were up 15.4% from 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 toward durable goods drove strong imports while global supply-chain disruptions and a slower recovery in major U.S. trading partners weighed on exports. Real GDP declined in the second quarter of this year as growth in consumer spending and a narrower trade deficit were more than offset by declines in investment and a big drag from inventories. 

Looking ahead, trade should be positive for growth in the third quarter. High inflation and increasing interest rates will continue to slow consumer demand, putting downward pressures on imports. Supply-chain problems appear to be easing; the price of shipping one 40-foot container from Shanghai to Los Angeles dropped this week to the lowest level since June 2021. Improved supply chains should support exports of manufactured goods this year. However, risks to the trade deficit are to the upside. An extended heatwave in China could lead to factory shutdowns, further disrupting global supply chains.

The PNC Financial Services Group, Inc. is one of the largest diversified financial services institutions in the United States, organized around its customers and communities for strong relationships and local delivery of retail and business banking including a full range of lending products; specialized services for corporations and government entities, including corporate banking, real estate finance and asset-based lending; wealth management and asset management. For information about PNC, visit www.pnc.com.