U.S. Trade Deficit Unexpectedly Narrows in August as Exports Rise and Imports Decline

Rising exports helped the trade deficit decline to -$57.6B (consensus -$59B) in August. This was a 2.4% decline from July's deficit, and the lowest level since January. A weaker dollar and robust foreign economic growth allowed U.S. exports to increase for the fifth month in a row (+.5% MoM). This is helping support the U.S. economy, especially for durable goods such as aircraft, and capital goods. Demand remains high for U.S. agricultural products as well as industrial supplies. Imports into the U.S. fell in August, as the U.S. economy slowed and domestic demand weakened.

A risk to continued improvement in the trade deficit will be rising oil prices. Oil prices rose to a record high in September.

When only volumes of goods are compared, ignoring prices, the trade deficit fell to the lowest level since 2004. This figure is used for calculating the impact of trade on economic growth.

The weaker dollar is helping encourage foreign tourism to the U.S. Increased travel helped boost the surplus in services to a new record high of $9B in August. New records were also seen in demand for U.S. goods from Central and South America as well as OPEC countries. American companies exported a record $5.9B of goods to China in August, helping narrow the trade deficit with China by 5.4% to $22.5B in August. China is now the U.S.'s second largest trading partner after Canada.

Net, this report indicates that GDP could be revised higher. But weaker domestic demand is partially offsetting the improving export demand.