Larger Trade Gap Shows Downside of Robust Domestic Demand

Source: Economics Group of Wells Fargo Bank, N.A. Summary The September trade report makes sense of the initial GDP estimate which revealed a drag from trade in Q3 when most anticipated a slight boost amid a trend narrowing in the trade gap. Exports grew in September, but imports grew even faster amid resilient domestic demand. Bridging the Gap Wasn’t Going to Be Easy With a trend normalization toward pre-pandemic norms underway, it did not immediately make intuitive sense to see trade subtracting from third quarter growth in the first estimate of that quarter’s GDP. It is a reminder that trade flows can be volatile on a month-to-month basis. The trade deficit widened to $61.5B in September, undoing about half of the trade gap’s narrowing in the prior month (chart). Imports increased 2.7% outpacing exports which rose 2.2%. The outturn, along with a slight downward revision to August’s balance, makes sense of the advance Q3 GDP report. Still, over the past year, the trade deficit has narrowed back toward its pre-pandemic norm. Exports and imports have downshifted on trend, as global growth has plateaued and domestic demand has slowly moderated. READ FULL ARTICLE >>