Trade gap widens again

December 6, 2023

The U.S. international trade deficit widened by 5.1% in October to $64.3 billion, more than expected, as exports fell and imports rose. That is the second month in a row of the trade deficit widening, reversing the trend we saw earlier this year. It marks the first decrease in exports since June of this year. The deficit has now decreased 19.8% year-over-year as exports increased 1.1% and imports fell by 4.0%.

Exports lost ground, by 1%, mainly on big-ticket consumer goods such as passenger cars, trucks and jewelry as consumers have become more careful with their purchases. Exports are also being hampered by appreciation of the dollar, making U.S. exports relatively more expensive; the dollar appreciated 1.5% every month, on average, between August and October according to the Federal Reserve real trade-weighted broad dollar index. The exception to goods exports was industrial supplies with chemicals and other materials increasing. The services surplus for the U.S. grew as exports of transport, business services and financial services increased. Travel exports were flat.

Imports climbed 0.2% in October. Retail sales were weak during the month, especially for automotives, which posted a decrease in imports of $1 billion. Consumer goods also fell by 0.7%. Outside of automotives and consumer goods, capital goods such as computers and oil drilling equipment saw fairly sharp increases. The same goes for imports of services such as travel; the number of those out of work because they were on vacation climbed to 2.3 million in the October jobs report, tied with October 2022. The only October on record with larger numbers was in 1993. Imports will likely be weighed down by inventories, which are expensive to carry with higher interest rates; retailer inventories were flat as a buildup of autos was offset by a drain from other retailers, while wholesalers drained their nondurable goods.

The trade deficits, measured quarterly, with Mexico, China, Japan, the South and Central American region and Germany all grew after narrowing during the second quarter. There was a narrowing in the trade deficit with Canada and Vietnam.

The data on international trade are not adjusted for inflation. Import prices fell by 0.8% while export prices fell by 1.1% in the month of October. That means that in real terms imports rose by 1% while exports were flat, translating to a still larger increase in the trade deficit in real terms. That is in line with our expectations of a larger hit to GDP from trade in the fourth quarter.