The US trade deficit narrowed in May as a result of slowing domestic demand, amid rising interest rates and inflation that dampened imports.
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This reduction, which comes on top of the one recorded in April, should make a positive contribution to economic growth in the second quarter. In May, the goods and services deficit with the rest of the world amounted to 85.5 billion dollars, a decrease of 1.3% compared to April, the data of which have been revised downwards (86.7 billion against 87.1 billion initially announced), according to Commerce Department data released Thursday. This is the smallest volume since December 2021 when it reached 78.86 billion. However, this remains higher than analysts’ projections, which had forecast 84.9 billion.
Exports of goods and services rose 1.2% to a record $255.9 billion. However, they increased less rapidly than the previous month, due to the slowdown in travel, recorded in exports of services. Imports reached 341.4 billion (+0.6%), thus remaining well above exports.
Slowdown in the goods and services deficit
“The decrease in the goods and services deficit in May reflects a decrease in the goods deficit from $2.9 billion to $105 billion and a decrease in the services surplus from $1.7 billion to $19.4 billion of dollars“, detailed the ministry in a press release.
Year-to-date, the goods and services deficit jumped 38.4% compared to the same period in 2021, with exports up 19.4% and imports up 24%. The first quarter had been marked by a record trade deficit, with a peak in March (107.65 billion) when companies rebuilt their stocks reduced to a trickle. In May, several export categories set records, including industrial supplies, automobiles and parts, and petroleum.
Petroleum and auto imports also hit a new high. The reduction in the trade deficit is good news for the growth of the world’s largest economy. However, economists note that the trade balance is likely to be disturbed in the months to come.
Read alsoUSA: trade deficit narrows less than expected in May
Slowing global economy
Mahir Rasheed, an economist at Oxford economics, predicts that “domestic and global trade flows will slow further in the coming months“. The US central bank began aggressively raising interest rates in March to curb demand and calm inflation, which has been at a record high for more than 40 years. That “will restrain still solid domestic consumption while exports face downside risks as Europe struggles with high prices, Chinese growth slows and the dollar continues to strengthen», summarizes Mahir Rasheed.
Last month, the International Monetary Fund (IMF) warned that it would revise down its forecast for global growth this year. The institution already lowered its global growth projections to 3.6% for 2022 in April in a context of rising inflation linked to the war in Ukraine. It will publish its new projections at the end of July.
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By geographic area, the US trade deficit narrowed in May with China and Mexico, but widened with Canada and the European Union. The data comes as the Biden administration considers what to do with tariffs imposed on the equivalent of $350 billion worth of imports of Chinese goods.
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