Merchandise-Trade Deficit Widens on Exports Drop
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The U.S. merchandise-trade deficit unexpectedly widened in May on the biggest drop in exports since the onset of the pandemic, while imports were little changed.
The shortfall in goods trade grew 11.1% to $96.6 billion, Commerce Department data showed June 26. The figure was larger than the $86.1 billion median estimate in a Bloomberg survey of economists.
U.S. merchandise exports decreased 5.2% to $179.2 billion in May, reflecting a sharp decline in shipments of industrial supplies such as crude oil. The figures aren’t adjusted for inflation, and oil prices have declined since earlier this year.
Imports were little changed at $275.8 billion, a month after the largest decline on record. In the first quarter, inbound shipments of foreign goods surged as U.S. companies stocked up on goods and materials ahead of tariffs that President Donald Trump imposed.
The wider May deficit indicates trade may contribute less to second-quarter growth than initially anticipated. Prior to the latest figures, the Federal Reserve Bank of Atlanta’s GDPNow estimate showed net exports contributing more than 2 percentage points to second-quarter GDP.
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A first-quarter surge in imports subtracted a 4.66 percentage points from the government’s GDP calculation, the most since 2020, according to the revised estimate released separately on June 26. The economy shrank 0.5% in the January-March period.
The first-quarter GDP report also highlighted a disconnect between the impact from trade and inventories. Typically, imported merchandise moves into warehouses or directly to storefronts, providing at least some offset in the GDP accounts.
But inventories contributed 2.59 percentage points to first-quarter GDP, not nearly enough to make up for the deterioration in the trade balance and puzzling economists.
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One reason could be that inventories were underestimated despite a massive jump in imports of pharmaceuticals, said Oliver Allen, senior U.S. economist at Pantheon Macroeconomics.
Allen said the same distortions that pushed down GDP at the start of the year may have the opposite effect in the second quarter as the front-running of goods ahead of tariffs subsidies.
In addition to the merchandise-trade data, the latest advance economic indicators report showed retail inventories rose 0.3% last month. Stockpiles at wholesalers declined 0.3%.
Trump has made tariffs a cornerstone of his strategy to spur domestic production, drive export growth to erase deficits with U.S. trading partners, raise revenue for the government and bolster national security.
A separate report from the Commerce Department on June 26 showed that core orders placed with U.S. factories for business equipment jumped 1.7%, the most since the start of the year. Core capital goods shipments climbed 0.5%.
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Bookings for all durable goods — items meant to last at least three years — jumped 16.4%. That was the largest gain since 2014 and reflected an outsized boost in commercial aircraft orders. Boeing Co. said it received 303 orders in May, up sharply from the previous month.
Another report June 26 from the Labor Department showed recurring applications for jobless benefits climbed to the highest level since November 2021, indicating unemployed Americans are having a tougher time finding another job.
