- The U.S. trade deficit widened to $55.5bn in May from a downwardly revised $51.2bn in April (previously $50.8bn) and was broadly in line with consensus expectations.
- Trade in both goods and services saw strong rebounds in May. Nominal exports of goods grew by 2.9% month-on-month, following a 3.2% contraction in April. The rise was even stronger when stripping out prices as real goods exports grew by 3.1% month-on-month. There was broad-based improvement across all product categories except industrial supplies, which saw a mild contraction (-0.9%). Capital goods (3%) and consumer goods (4.8%) exhibited particular strength, picking up from weak April showings.
- Nominal imports of goods rose by 3.9% m/m in May, after contracting by 2.5% in April. Like real exports, real imports recorded a stronger increase, growing by 4.1%, the strongest increase since March 2015. Growth was positive across all import categories with a standout performance from automotive imports (7.6%).
- Services exports and imports both grew by 0.5% m/m, reversing the downturn observed in April.
- Trade deficits widened with most trading partners specifically Canada, China and Mexico.
Key Implications
- Trade bounced back in a big way in May. Exports from China picked up sharply likely due to a pull-forward of imports in expectation of further tariffs on Chinese imports. The 10% to 25% increase in tariffs on $200bn worth of Chinese goods will take full effect in June.
- The strength in imports reflects the continued strength in U.S. domestic demand. Rebounds in capital goods and industrial supplies indicate some life in investment, diverging somewhat from the signals coming from other indicators.
- On the whole, we don’t expect May’s strength in international trade to persist, especially as much of it appears merely to get ahead of anticipated tariffs. With slowing global growth and tariff uncertainty in the air, gains in trade will likely remain muted through the rest of the year.
