Weekly Economic Trends and Indicators
The Headlines:
The U.S. trade deficit was $71.5 billion in May, up $11.3 billion from April, according to the Bureau of Economic Analysis. The trade deficit for May was slightly below the average monthly deficit of $75.3 billion for 2024 and down significantly from the monthly deficits for January through March which were each over $120 billion.
Also in international news, the nominal broad U.S. dollar index has stabilized over the last few weeks. The index stood at 120.8 on July 18, approximately the same level as in mid-June. The index peaked at 130.2 in January—the highest level since this index was created in 2006.
The Details:
Earlier this year, we noted that the dramatic increase in the trade deficit was mostly due to imports of nonmonetary gold and finished metal shapes (including gold bars). This was widely expected to be temporary and a hedge against possible trade restrictions and contributed to the overall “pull forward” of imports ahead of the tariffs. Since then, the gold trade has returned to normal levels, and imports of most goods are also reasonably close to levels typical of 2024.
Among the goods for which imports are still lower than last year’s levels include energy products (coal, crude oil, fuel oil, and other petroleum products) and iron and steel mill products. In the other direction, copper imports through May 2025 are nearly double compared to the same time last year, reflecting the pull forward of imports before copper tariffs are expected to be imposed August 1.
The Context:
Currency movements can have multiple causes. A sudden increase in imports could put downward pressure on the dollar, as it did in the first quarter. However, bond yields and inflation expectations also matter. If inflation expectations keep falling and interest rates remain elevated while imports normalize, it could push the dollar back up to uncomfortable levels. Despite the psychological attraction of a strong dollar, this would raise the price of our exports, harming domestic manufacturers. On Friday, President Trump noted this in comments to the press. Lower interest rates would help on several levels, including keeping the dollar from strengthening too much due to tariff-induced import decreases.
Next week: 2nd quarter U.S. GDP
