US trade deficit shrinks due to weak demand

The U.S. trade deficit shrank for the fifth straight month in August amid a decline in imports caused by slowing domestic demand amid aggressive monetary tightening by the Federal Reserve to curb inflation.

A Commerce Department report released Wednesday said trade will again  facilitate GDP growth in the third quarter. The sphere of economy may also be supported by a large increase in retail and wholesale inventories last month, although business and consumer spending is likely to be low.

The goods trade deficit decreased by 3.2% to $87.3 billion last month, which is the lowest since October 2021. Imports of goods decreased by $4.6 billion to $267.1 billion. Imports of manufactured goods, including oil, decreased by 6.9%.

Imports of capital goods decreased by 1.8%, while imports of consumer goods decreased by 0.2%. However, there was an increase in imports of motor vehicles, food and other goods, which led to an increase in retail stocks.

The US central bank last week raised its interest rate by 75 basis points, which was the third increase of this size in a row. This signaled a more significant increase this year. Since March, the Fed has raised its interest rate from almost zero to the current range of 3.00% to 3.25%.

The rising cost of loans and high inflation are putting pressure on consumers, forcing them to limit spending. Economists had expected imports to continue to decline.

Exports of goods fell by $1.7 billion to $179.8 billion in August. The drop in exports was due to cars, whose deliveries fell by 8.9%. Exports of manufactured goods fell by 3.5%. But exports of consumer goods grew by 8.0%. Exports of food, capital and other goods also increased.

"We don't expect this situation to change markedly in the near future, and we expect the gap of commodity trade to keep on shrinking during these months," said Matthew Martin, an American economist at Oxford Economics in New York.

Highest exports and moderate customer spending were the only positive moments in the economy in the second quarter, which helped to limit the impact on GDP as a result of a sharp slowdown in the pace of inventory accumulation.

Car inventories jumped up to 3.7% from the score of 3.5% in the previous month. Inventories in retail trade, excluding motor vehicles, increased by 0.6% after an increase of 0.3% in July.

"The accumulation rate of real inventories is currently stabilizing in a period of the second and third quarters, which means that inventories will sustain GDP growth in the third quarter,"  an economist at JPMorgan in New York, Danial Silver reported.