U.S. Trade Deficit Remains Near The Narrowest Since 2001

As the U.S. recession continued, the foreign trade deficit remained near its narrowest level 2001. The deficit of $27.0B was just slightly deeper than the unrevised May level of $26.0B. Consensus expectations had been for a deficit of $28.5B. Higher petroleum imports have been the main source of upward pressure on the trade deficit recently. Higher crude oil prices raised them by more than one-quarter during June and by 12.2% so far this year. Offsetting that increase was the U.S. recession which caused June nonpetroleum imports to fall by 1.0%. That pulled their decline so far this year to 15.7%. Higher exports were the second factor which limited trade deficit deterioration during June. The competitive foreign exchange value of the dollar helped exports to rise by 2.0% after a firm 1.6% gain during May. Nevertheless, recessions abroad have lowered exports by 5.4% since December.

The rise in petroleum imports was driven by higher crude oil prices. They rose to a June average of $59.17 per barrel versus the February low of $39.22. The recession and the rise in prices prompted, however, a decline in the volume of petroleum imports. Despite a June gain they have fallen roughly ten-percent since December. The recession has had the additional effect on limiting the size of the trade deficit by dropping nonoil goods imports. They fell a hefty 1.0% during June for the ninth sharp monthly decline in a year.

Adjusted for price inflation overall and for higher oil prices specifically, the trade deficit in goods actually narrowed slightly during June to $35.9B, the lowest since 1999. It was down from $45.3B last June. Real non-auto consumer goods imports fell a hard 4.8% m/m and are down 17.8% y/y, near their lowest level since 2005. Automotive vehicles & parts imports were down by exactly one-half versus last year. Non-auto capital goods imports continued to reflect the weakness in investment and fell 24.4% y/y near their lowest level since 2004.

Though services imports rose 2.3% during June that followed ten months of decline and they were off by nearly one-third y/y. Travel imports were down 12.8% y/y as passenger fares dropped by 9.0%.

Real exports added 0.6% to their 1.9% gain during May. Nevertheless, recessions abroad caused them to fall by 21.4% year-to-year to near the lowest level since late-2005. The chained dollar value of non-auto consumer goods exports slipped m/m and were down 13.8% y/y. Real capital goods exports jumped 1.5% but were off 20.6% y/y while exports of automobiles & parts were off by roughly one-half from last year.

Nominal exports of services rose 1.3% (-11.5% y/y) for the first material increase since last fall. Travel exports fell 18.8% y/y as fewer foreign citizens came to the U.S. even as passenger fares fell 22.5%.

The U.S. trade deficit in goods with China deepened again, during June to $18.4B. Imports from China fell 14.1% y/y while U.S. exports fell a lesser 10.3%. The trade deficit with Japan deepened sharply to $3.7B but it remained near its shallowest since 1990. The U.S. recession drove imports from Japan down by 36.5% year-to-year while U.S. exports to the country fell by 30.4%.