 | The Trade Deficit Came in at $41.9 Billion in May |
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| Posted Under: Data Watch • Trade |
Implications: It finally looks like we've moved beyond both the West Coast port strikes and the clearing out of the strike-related backlog that followed the end of the strikes earlier this year. The trade deficit has now remained at more normal levels over the past two months. That said, the trade deficit in goods and services widened slightly in May, as exports declined more than imports. As a result, it now looks like trade should be a very slight drag on Q2 real GDP growth. Looking past strike-related issues earlier in the year and month-to-month volatility, the trade deficit has been relatively stable over the past few years, with a smaller trade deficit in oil and a slightly larger deficit in other goods, powered by growing purchasing power among US consumers and businesses. We expect this trend to continue in the year ahead. While the US continues to grow, other areas of the world continue to struggle. Slower growth abroad, along with a stronger dollar have slowed exports. For instance, exports to the Euro Area are down 5.9% from a year ago. This will not last forever, but may continue to be a factor over the coming year. Meanwhile, today's data underscore why OPEC continues to become less relevant to the US. Back in 2005 US petroleum and petroleum product imports were eleven times exports. In May, these imports were only 1.6 times exports. The US is headed toward energy independence thanks to fracking and horizontal drilling. In fact, despite lower oil prices over the past year, US domestic oil production continues to rise, hitting 9.7 million barrels per day in April, the highest level of production since 1971, and fast approaching the all-time high of 10 million barrels per day. Entrepreneurs and engineers, through the use of new technologies, have changed the way the world works and there's more to come.
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