Weekly Economic Trends and Indicators

The Headlines:

According to the Census Bureau and the Bureau of Economic Analysis, the U.S. trade deficit increased from $70.8 billion in August (revised) to $84.4 billion in September. This represents an increase of 19.2%. Exports were down 1.2% in September while imports were up 3.0%.

The Details:

The September export numbers were heavily influenced by the strike at Boeing. Civilian aircraft exports were down $1.7 billion, which was more than 10% of the monthly increase in the trade deficit. Also leading the decreases in September were pharmaceutical preparations and crude oil.

However, the products which led the declines this month were somewhat of an anomaly compared to their performance over the last year. In terms of year-to-date export declines some of the categories experiencing the largest declines include soybeans (down 19.8%), natural gas (down 20.5%), gem diamonds (down 24.4%). Agricultural equipment, nonfarm tractors and parts, excavating machinery, trucks, cars, and auto parts are also down year-to-date.

Import growth for computers along with electrical and telecommunications equipment has been especially strong. Meat products and pharmaceutical preparations have also seen large percentage gains in imports year-to-date.

The Context:

The U.S. trade deficit is now the largest that has been in over two years. After remaining essentially stable at around $40 billion for most of the 2010s, it increased dramatically after the COVID-19 pandemic. The rise in the trade deficit roughly parallels the increase in the value of the dollar on the world currency market. A strong dollar makes the rest of the world’s goods less expensive for us while making our goods more expensive for the rest of the world.

The dollar began to strengthen in 2021, driven by the expected strength of the U.S. economy following COVID and the expected rise in interest rates which became reality by mid-2022. Around the time of the peak value of the dollar, the trade deficit also peaked at a record $101.9 billion in March 2022. After a brief pullback in 2023, the dollar is on the rise and once again approaching mid-2022 levels. This is causing a steady increase in imports and making things very difficult for U.S. export industries.

Recent developments in the U.S. and abroad may cause this trend to continue for the near future. This summer, the World Bank published a report forecasting that for 2024-25, economic growth “is set to underperform its 2010s average in nearly 60% of economies, representing more than 80% of global population and world output.” Slower global growth reduces demand for U.S. exports. Also, a bias toward a slower path of interest rate cuts that we noted last week also puts upward pressure on the dollar which has been evident in the data over the last few days. Global growth is expected to pick up, but higher interest rates worldwide could delay progress.

Next week: Inflation update