Weekly Economic Trends and Indicators

The Headlines:

The U.S. trade deficit was $77.6 billion in May, up $23.0 billion from April, according to the Bureau of Economic Analysis. Since the implementation of new tariffs in 2025, the average monthly trade deficit has fluctuated more than it did before the tariffs. However, the range of the three-month moving average is now roughly the same as it was before 2024.

Also in the news relevant to international trade, the dollar continues to trade in a narrow range. The nominal broad U.S. dollar index as of last week is about where it was a year ago, having remained +/-2% of that level throughout the last 12 months.

The Details:

While the overall trade deficit has returned to pre-tariff levels, the composition of trade has shifted. Both exports and imports are higher than before the tariffs.

Some of the categories of services where exports have increased significantly are insurance and financial services, charges for the use of intellectual property (including AI applications), information services. Imports also increased for most of those categories, except for intellectual property. Another category of imports that saw a large increase was travel services (more U.S. citizens traveling abroad).

The value of exports of oil, natural gas, and other petroleum products have also surged in recent months due to higher prices.

The Context:

The relative stability that has prevailed since the new tariffs have been implemented has helped the import and export sectors to adjust to a new normal. In addition to the recovery of trade flows, international investment flows have also increased. In particular, foreign portfolio investment has increased significantly over the last year. This means that foreign investors are holding more U.S. government debt as well as investments in the U.S. stock market. These increased holdings provide support to the dollar and help keep our borrowing costs contained.

For the moment, the forces that would tend to push international markets in one direction or the other are roughly in balance. Looking forward, inflation expectations and the path of interest rates could affect that balance. If productivity growth helps keep inflation below expectations at current interest rates, that would spur demand for dollar assets, raising the value of the dollar. Ordinarily, that would tend to lower exports, but in this case, it would more likely shift exports more towards intellectual property and AI products that are in high demand due to productivity growth and away from other sectors where productivity growth is less robust.

Next week: Productivity update