Jamie Spencer
The U.S. trade deficit contracted sharply in October, marking the largest drop in imports since late 2022. This significant shift positions trade to potentially contribute positively to economic growth in the fourth quarter.
Trade Gap Shrinks as Imports Decline
The trade deficit narrowed by 11.9%, falling to $73.8 billion in October from a revised $83.8 billion in September, according to the Commerce Department. Economists had anticipated a smaller decrease to $75.0 billion, reflecting a better-than-expected improvement in trade dynamics.
Imports dropped 4.0% to $339.6 billion, driven by a 5.5% decline in goods imports, which totaled $269.3 billion. This marks the largest monthly drop in imports since November 2022.
Key Drivers of Import Decline
Several factors contributed to the sharp decline in imports:
- Capital goods imports fell by $7.5 billion, largely due to reduced purchases of computers and semiconductors.
- Industrial supplies and materials, including petroleum, decreased by $3.3 billion, with petroleum imports hitting their lowest level since June 2021 at $17.2 billion.
- Consumer goods imports, such as pharmaceutical preparations, also declined, along with automotive vehicles, parts, and engines.
On the other hand, imports of services reached a record high of $70.2 billion, buoyed by increases in travel, intellectual property charges, and transport services.
Export Trends and Narrowing Goods Deficit
Exports fell by 1.6% to $265.7 billion, with goods exports dropping 3.0% to $170.7 billion. The decline was led by a $3.9 billion reduction in capital goods exports, alongside decreases in automotive vehicles, industrial supplies, and consumer goods shipments.
However, services exports rose to an all-time high of $95.1 billion, supported by gains in travel, business services, and telecommunications.
The goods trade deficit narrowed 9.5% to $98.7 billion and decreased 7.3% to $92.4 billion when adjusted for inflation, signaling a potential shift in trade’s contribution to GDP.
Outlook: Trade Dynamics and Tariff Threats
The improvement in the trade deficit comes amid uncertainty about President-elect Donald Trump’s proposed tariffs, which include a 25% levy on goods from Mexico and Canada and a 10% tariff on Chinese imports. Businesses concerned about these policies may front-load imports in the coming months, reversing the October decline.
Economists warn that this could keep trade as a drag on GDP, despite the current improvement. Trade subtracted 0.57 percentage points from GDP in the third quarter, which grew at a 2.8% annualized rate.
The Bottom Line
October’s trade data suggests a potential turning point, with declining imports narrowing the trade deficit and opening the door for trade to support economic growth. However, uncertainty around tariffs and geopolitical factors could disrupt these gains in the months ahead.
