Trade Deficit Narrows in June & Presents Potential Downside to Q2 GDP

Economics Group of Wells Fargo Bank, N.A. Summary The U.S. trade balance narrowed as expected in June as a plunge in imports outpaced a more modest decline in exports. Trade flows remain volatile, but the trend in both exports and imports is clearly lower. June real goods imports imply some downside risk to the second estimate of Q2 GDP growth.

Larger Drop in Imports is Saving Grace for Deficit

  • U.S. international trade flows remain volatile month-to-month, but they continue to normalize on trend. Overall exports slipped by $0.3 billion, which paled in comparison to the $3.1 billion plunge in imports. Together this caused the U.S. trade deficit to narrow to -$65.5 billion in June from an upwardly revised deficit of -$68.3 billion a month earlier.
  • Second quarter GDP data revealed net exports were a fairly neutral force on growth during the quarter, slicing just 0.12 percentage points off headline GDP growth. This initially appeared at odds with how monthly trade data were tracking for the quarter, and today’s real goods imports imply that downside risk is still there. There could yet be a bigger drag from trade, which could pull overall GDP growth lower in the next estimate. While monthly data still suggest weak imports in Q2, there is an unusually wide gap between the monthly and quarterly figures.
  • Imports slipped to their lowest level since 2021 amid fairly broad based weakness. Passenger car imports were a notable exception rising $1.7 billion during the month, amid continued recovery in the sector. Consumer pharmaceutical products was the only other source of strength, a category that has been particularly volatile month to month and prevented overall consumer goods imports from declining again this month. Export growth was not much better, though capital goods recovered after two consecutive monthly drops.