US trade deficit shrinks sharply as imports hit more than 1-1/2 year low

Imports drop 1.0%, goods imports decline 1.2%; exports dip 0.1%, goods exports decrease 0.1%

The U.S. trade deficit narrowed sharply in June as businesses cut back on purchases of foreign-made capital goods, resulting in imports falling to the lowest level in more than 1-1/2 years.
 

The decline in imports reported by the Commerce Department on Tuesday potentially signals a slowdown in business investment and overall domestic demand amid hefty interest rate hikes from the Federal Reserve.
 

"Dwindling imports reflect a stalling in domestic demand but also the fact that importers are being cautious in terms of inventory accumulation," said Shannon Seery, an economist at Wells Fargo in Charlotte, North Carolina.
 

"We look for the trade balance to be a fairly neutral factor in the near-term before boosting growth in the beginning of next year as domestic demand falters more than growth abroad and continues to exert downward pressure on import growth." The trade deficit contracted 4.1% to $65.5 billion. Data for May was revised to show the trade gap narrowing to $68.3 billion instead of $69.0 billion as previously reported.
 

Economists polled by Reuters had forecast the trade deficit shrinking to $65 billion.
 

Imports of goods and services declined 1.0% to $313.0 billion, the lowest level since November 2021. Goods imports tumbled 1.2% to $253.3 billion, the lowest level since October 2021. Capital goods dropped $2.3 billion, with imports of computers decreasing $1.6 billion.
 

Imports of industrial supplies and materials, which include crude oil, fell $2.2 billion to the lowest level since May 2021.

June petroleum imports were the lowest in nearly two years. But the nation boosted imports of motor vehicles, engines and parts, which increased $1.3 billion to a record high.
 

Consumer goods imports edged up $0.4 billion as an increase in pharmaceutical preparations was offset by a decline in artwork and other collectibles. Imports of services decreased $0.2 billion to $59.7 billion.
 

Exports dipped 0.1% to $247.5 billion. Goods exports also slipped 0.1% to $165.1 billion. Exports of industrial supplies and materials declined $0.7 billion to the lowest level since September 2021. Decreases in crude oil, fuel oil and natural gas liquids more than offset increases in exports of nonmonetary gold and other chemicals. Petroleum exports were the lowest since October 2021
 

Consumer goods exports fell $0.4 billion, led by a decline in pharmaceutical preparations. Capital goods increased $0.8 billion, lifted by shipments of industrial machinery and telecommunications equipment.
 

Exports of civilian aircraft dropped $0.8 billion. Services exports decreased $0.2 billion to $82.3 billion.
 

Trade was a small drag on gross domestic product in the second quarter after contributing to growth for four straight quarters. Both export and import volumes declined last quarter and their shares of GDP were the lowest since the mid-2000s, outside of recessions, according to JPMorgan, attributed to reshoring of manufacturing.
 

Efforts by President Joe Biden's administration to bring semiconductor manufacturing back to the United States have seen a boom in factory construction. The economy grew at a 2.4% annualized rate in the April-June quarter.