GDP may get a lift after U.S. trade deficit drops to 5-month

By Jeffry Bartash

Exports climb to record high and imports decline

The numbers: The U.S. trade deficit sank 11% in August to a five-month low and appeared primed to give a helping hand to the official measure of economic growth in the third quarter.

The trade deficit dropped to $70.4 billion in June from $78.9 billion in July, the government said.

A higher trade gap in the second quarter shaved almost 1 percentage point off a still-healthy 3% annual increase in gross domestic product, the official scorecard of the U.S. economy.

A shrinking deficit is likely to be neutral for GDP in the third quarter, but that depends on what happened in September. Lower deficits add to GDP.

Key details: Exports rose 2% in August to a record $271.8 billion. They have been rising gradually for the past two years.

The U.S. shipped more pharmaceutical drugs, aircraft, computers and networking gear.

Imports slipped less than 1% to $342.2 billion, but they are still near a record high.

The value of oil imports declined because of falling prices.

Sales of both domestic and foreign vehicles have also been soft because of high interest rates and lack of interest in electric cars.

Big picture: The big appetite by Americans for imported goods reflects in part robust consumer demand and the strength of the U.S. economy.

The U.S. is on track to grow at an above-average speed of nearly 3% in the third quarter.

The Federal Reserve is also likely to keeping cutting interest rates, and that could further boost demand for imported goods.

Strong exports are also helping, but demand might not last given some weakening in the global economy.

Market reaction: The Dow Jones Industrial Average DJIA and S&P 500 SPX rose in Tuesday trading.

-Jeffry Bartash

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10-08-24 1354ET

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