Weekly Economic Trends and Indicators
The Headlines:
The U.S. trade deficit was $78.3 billion in July, an increase of $19.2 billion from June, according to the Bureau of Economic Analysis. The trade deficit for July was the highest since March and roughly on par with the average monthly deficit for 2024.
Also in international news, the nominal broad U.S. dollar index has remained within a narrow range since June. For the most part, the dollar index has fluctuated between 120 and 122 which is about 7% lower than in January.
The Details:
Much of the month-to-month fluctuation in the trade deficit continues to be changes in the import and export of nonmonetary gold and finished metal shapes (which includes gold bars). This is hedging activity against the possibility of future tariffs. In July, both imports and exports of nonmonetary gold were up substantially from June, though the net impact was much less than earlier this year.
U.S. soybean exports are down 17% year-to-date compared to 2024 while corn exports are up 26%. Imports are up across most broad categories of goods, despite this year’s tariffs. Some exceptions include crude oil (imports down 15% year-to-date) and automobiles, parts, and engines (imports down 9% year-to-date). Imports of consumer goods, on the other hand, are up 13%. Imports of food are up 8% year-to-date—however within that category, imports of vegetables are down 9%. Higher prices may bear at least some of the blame, as we have previously noted, vegetable prices jumped 39% in July.
The Context:
Overall levels of both imports and exports have seen larger than usual fluctuations this year, and as noted above, year-to-date exports and imports for specific goods have either increased or decreased significantly. These changes are primarily due to tariffs and the uncertainty that has been injected into the market. This has an important effect on the Quad Cities economy due to our reliance on international trade. The Quad Cities ranks 57th out of 387 metro areas in the U.S. in terms of exports--well above most areas with similar population. While there may be long-run opportunities as production shifts, there is also short-run disruption due to higher prices for imported materials.
Even so, consumers appear to still be mostly undaunted by the changing conditions. The robust import activity in consumer goods, even in light of increased tariffs, coincides with strong consumer spending for domestically produced goods and contributes to a larger trade deficit. However, if the economy begins to weaken, future interest rate cuts could push the dollar down further, making imports more expensive and helping to contain the trade deficit. Whether the economy weakens further or not, one important question that remains is how long imports of consumer goods can continue to rise as prices rise due to the pass-through of the tariffs.
Next week: 2nd quarter U.S. productivity growth
