U.S. trade deficit in goods plunges 8.3% in August and might only be small drag on GDP

By Greg Robb

Trade gap narrows to $94.3 billion, smallest since March

The numbers: After hitting the highest levels in more than two years in July, the U.S. trade deficit in goods narrowed 8.3% to $94.3 billion in August, according to the Commerce Department's advanced estimate released Friday. This is the smallest trade gap since March.

Economists polled by Econoday were looking for the deficit to narrow to a $100 billion deficit from last month's $102.7 billion gap.

Key details: The smaller deficit came due to a rise in exports and a decline in imports.

Exports of goods rose $4.1 billion, or 2.4% to $177 billion in August.

Goods imports fell $4.5 billion, or 1.6% to $271.3 billion.

Wholesale inventories rose 0.2% in August % after a 0.3% rise in the prior month. Retail inventories jumped 0.5% after a 0.8% gain in July. Nonauto retail inventories rose 0.4% after a 0.5% rise.

Big picture: Net trade may only be a small drag on third-quarter gross domestic product after damping growth in the first two quarters of the year.

Half of the unexpected improvement in the goods trade deficit was due to a plunge in imports of food and industrial supplies, which includes oil, said Oliver Allen, senior U.S. economist at Pantheon Macroeconomics.

Darcy estimates that trade may only subtract 0.2 percentage points from growth in the July-September quarter.

U.S. Q3 GDP "just north of 2% seems a reasonable base case," Allen said.

Looking ahead: "Rising inventories always worry us as advance warning that production might have to be cut back. We are watching. However, a rise in inventories does support GDP growth," said Carl Weinberg, chief economist at High Frequency Economics.

Market reaction: Stocks DJIA SPX opened higher on Friday while the 10-year Treasury yield BX:TMUBMUSD10Y was down to 3.77% in early morning trading.

-Greg Robb

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09-27-24 0943ET

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