Source: Economics Group of Wells Fargo Bank, N.A.
Summary
The U.S. trade deficit narrowed sharply in October amid broad-based weakness in trade flows. Yet, a recent accounting change at the Canadian border suggests export data may overstate the extent of the narrowing. We ultimately expect a near-term widening in the U.S. deficit as domestic businesses firm up imports in coming months ahead of potential tariff adjustments next year.
Narrower but Likely Not for Long
Volatility is a constant when it comes to trade flows. After the trade deficit swelled to $83.8 billion in September, its largest in nearly two and a half years, it narrowed to just $73.8 billion in October (chart). Both imports and exports came in during the month, but the $14.3 drop in imports largely exceeded the comparatively modest $4.3 billion drop in exports, leading to the narrowing.
Imports came up short in a broad sense, with each major end-use category declining. Most of the weakness was concentrated in a pullback in capital goods imports, namely of computers and semiconductors—two areas that have seen strong import growth so far this year. We also note the volatile consumer goods category of pharmaceutical preparations was responsible for just over half of the decline in consumer goods imports.