Trade Deficit Widens More Than Expected: Exports Weaken, Imports Rise

The US trade deficit with the rest of the world worsened in May to $-41.1 billion from $-37.4 billion.

Exports declined and imports rose. The latter primarily due to rising crude prices.

Contraction in capital goods exports shows declining global demand.

The May trade deficit was worse than the Bloomberg Econoday consensus estimate was $-40.0 billion and outside the entire range of $-40.5 billion to $-38.4 billion.

Highlights

There is some weakness in the May trade report as the nation’s trade deficit widened sharply to $41.1 billion from April’s $37.4 billion. The net deficit for goods widened to $62.2 billion from April’s $58.6 billion while the net surplus for services narrowed slightly to $21.1 billion.

In a negative indication on global demand, exports of both goods and services fell slightly in the month. But in a positive indication on domestic demand, imports rose a sharp 1.9 percent on top of April’s 2.3 percent gain. Much of the import gain is tied to the dollar effects of higher oil prices, which jumped nearly $5 in the month, but not all of it as imports of consumer goods and autos show solid gains.

The export side of this report, however, is decidedly weak with contraction sweeping capital goods and also civilian aircraft, two areas where weakness may be deepening.

An offset to May’s widening is the narrower gap in April where the deficit is unrevised at $37.4 billion. The deficit in April and May together is tracking lower than the first quarter which is a plus for second-quarter GDP. But this report will be most watched come July’s data which will offer early indications on both Brexit effects and the ongoing rise in dollar.

Exports and Imports May 2014 to May 2016