By Lucia Mutikani
WASHINGTON (Reuters) -The U.S. trade deficit narrowed sharply in August as exports increased to a record high, suggesting that trade could have little or no impact on economic growth in the third quarter.
The smaller-than-expected trade gap reported by the Commerce Department on Tuesday added to data on the labor market and consumer spending in suggesting that the economy remained on solid footing last quarter.
The economy’s strength likely has no impact on expectations that the Federal Reserve will cut interest rates again next month. It, however, reinforced views that the U.S. central bank did not need to pursue another half-percentage point rate reduction.
“This report says that net trade supports GDP growth in August,” said Carl Weinberg, chief economist at High Frequency Economics. “Putting together July and August figures suggests that net trade is flat so far in third quarter, making no significant addition or subtraction to GDP growth so far.”The trade gap contracted 10.8% to $70.4 billion, the smallest in five months, from a revised $78.9 billion in July, the Commerce Department’s Bureau of Economic Analysis said.
Economists polled by Reuters had forecast the trade deficit would narrow to $70.6 billion from the previously reported $78.8 billion in July.
Exports increased 2.0% to a record $271.8 billion. Goods exports surged 2.5% to $179.4 billion, the highest level since September 2022. They were boosted by a $1.7 billion rise in capital goods to a record high, mostly reflecting telecommunications equipment, civilian aircraft, computer accessories as well as other industrial machinery.
But exports of semiconductors fell.
Consumer goods exports increased $1.0 billion, lifted by pharmaceutical preparations. Exports of industrial supplies and materials increased as a $1.1 billion drop in crude oil was more than offset by a $1.5 billion rise in nonmonetary gold.
Automotive vehicles, parts and engines increased, driven by passenger car exports. Non petroleum exports were the highest on record as were those of other goods.
Exports of services increased $0.9 billion to an all-time high of $92.3 billion amid rises in travel as well as government goods and services. But exports of transport services fell.
Imports decreased 0.9% to $342.2 billion. Goods imports dropped 1.4% to $274.3 billion, pulled down by a $3.9 billion decline in industrial supplies and materials as well as a $1.2 billion decrease in nonmonetary gold.
Crude oil imports fell $1.0 billion. Motor vehicles, parts and engines imports decreased $1.3 billion, weighed down by passenger cars. But imports of other goods were the highest since December 2021. Goods imports had surged in the prior months, likely as business rushed to bring in shipments in anticipation of higher tariffs as well as a strike by dock workers last week, which lasted only three days.
Imports of services increased $0.7 billion to an all-time high of $67.9 billion amid gains in travel, charges for the use of intellectual property. But imports of transport services declined.
When adjusted for inflation, the goods trade deficit declined 8.9% to $88.6 billion. The average of the so-called real goods trade deficit for July and August roughly equals the average for the second quarter.
Trade has subtracted from gross domestic product for two straight quarters. Growth estimates for the third quarter are currently as high as a 3.2% annualized rate. The economy grew at a 3.0% pace in the April-June quarter.
(Reporting by Lucia Mutikani; Editing by Andrew Heavens and Nick Zieminski)
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