U.S. Trade Deficit Falls to Lowest Level in 5 Months in July

The Commerce Department said on Thursday that the U.S. trade deficit fell 7.4% in July to its lowest level in five months as exports rose, amid concerns about a global growth slowdown. Economists had forecast the trade gap shrinking to $42.4 billion.

The Commerce report showed the trade gap narrowed to $41.9 billion, the smallest since February, while June’s trade deficit was revised to $45.2 billion from the initially reported $43.8 billion. When adjusted for inflation, the deficit fell to $56.2 billion in July from $59.0 billion.

The narrower-than-expected deficit suggests a modest contribution to gross domestic product (GDP) from trade early in the third quarter, juxtaposed to the 0.3% contribution to the economy’s 3.7% revised annualized growth rate in the second quarter. Exports increased 0.4 percent to $188.5 billion in June, which was the first increase since April. Exports remain bogged down by a relatively strong U.S. dollar (USDUSD). The dollar has gained 16.8 percent against the currencies of the United States’ main trading partners since June 2014, partly due to the continued devaluation of the yuan (CNYUSD) by Beijing.

There were gains in exports of food, industrial supplies and materials, and capital goods in July. Automobile exports also rose. Meanwhile, imports fell 1.1 percent to $230.4 billion. Foreign automobile imports were the highest on record, while imports of consumer goods fell in July.

Exports to China fell 1.9 percent and imports from that country dipped 0.2 percent, making the politically toxic U.S.-China trade deficit $31.6 billion, up 0.4 percent from June. The trade deficit with China will be closely watched in the coming months after that country devalued its currency in August. Exports to Canada fell 8.3 percent in July and could come under more pressure after the Canadian economy slipped into recession in the second quarter. Exports to recession-hit Brazil were the lowest since February 2010. Exports to the European Union fell 5.3 percent.