Daily Economic Update: Trade Deficit

Each day the Research staff takes a look at recently released economic indicators, addressing what these indicators mean for REALTORS® and their clients. Today’s update highlights the trade deficit.

• In a surprise, the trade deficit rose more than expected in May to $50.2 billion from $43.6 billion a month earlier.  The increased gap came from imports of industrial supplies, capital goods and automotive vehicles, parts, and engines.   A large portion of the industrial supplies imports reflect the sharp increase in oil and gas prices that occurred in May, but have since ebbed and retreated.
• Headline exports weakened, but exports of capital goods as well as automotive vehicles, parts and engines continued to climb.  The headline decline was concentrated in exports of oil, cotton, chemicals, plastics and petroleum products, which could be had cheaper abroad.
• The increase in the trade deficit was not a large surprise as gas prices shot up earlier this spring, but the increase in the dollar value of those imports along with the drop in U.S. exports combined to create a surprisingly large increase in the trade deficit.  The balance will likely shrink as we move into summer since gas prices have fallen.  However, the strength of U.S. exports reflects steady foreign demand for the goods that they need to expand production abroad.  This strength means jobs retained in the U.S. and growing economies abroad that will help drive the long-term U.S. economic expansion.  The weakness of the dollar due to the trade deficit will help the U.S. in the near term to export and to create jobs.