U.S. Trade Deficit Widened in May as Both Exports, Imports Fell -- Update

07/02/2020 | 11:19am

By Harriet Torry

WASHINGTON -- Trade between the U.S. and the rest of the world slowed further in May in a sign of the continuing toll that the coronavirus pandemic was taking on the global economy.

Exports from the U.S. fell 4.4% to $144.5 billion, a Commerce Department report showed on Thursday. Imports slipped 0.9% to $199.1 billion, leaving a seasonally adjusted deficit of $54.6 billion, an increase of 9.7% and the widest since December 2018.

The U.S. usually runs a deficit in goods and a surplus in services such as medical care, higher education, royalties and payments processing. In May, the services surplus shrank to its lowest level since February 2016 as demand for business services waned, borders remained closed and travelers stayed home.

"We've got this enormous fall in services trade which maps to a slowdown globally centered around services," said economist Brad Setser, a senior fellow at the Council on Foreign Relations. "This is not your typical recession."

Exports of U.S. goods were the lowest since August 2009. Shipments of industrial supplies, capital goods and autos all fell, while consumer-goods exports picked up slightly. Imports of consumer goods, food and industrial supplies rose slightly as states began to reopen across the U.S.

A separate report from the Labor Department on Thursday showed that the U.S. unemployment rate fell to 11.1% in June from 13.3% in May. The jobless rate was still well above the pre-pandemic level of about 3.5%, and a recent coronavirus spike could hamper the labor market's recovery.

The pace of declines in imports and exports slowed from recent months. "Even so, trade flows will likely remain restrained owing to weaker global growth and subdued demand at home and abroad," Rubeela Farooqi, an economist at High Frequency Economics, Ltd., wrote in a note to clients.

The International Monetary Fund last week downgraded its forecasts for the global economy this year, as countries made less progress than expected curbing the pandemic and salvaging businesses. The IMF expects the global economy will shrink 4.9% this year, compared with its April estimate of a 3% decline.

Year to date, the U.S. goods and services deficit decreased 9.1% from the same period in 2019. Exports to the European Union in May were the lowest since January 2006.

Dow Inc. finance chief, Howard Ungerleider, last week described the second quarter as "a mixed bag" for the materials science company during a virtual conference, with diverging demand patterns in regions with worsening coronavirus outbreaks.

Some companies are more optimistic.

"We believe we've passed the trough of the economic impacts of the pandemic in most countries around the world," said Ray Young, chief financial officer at Chicago-based agricultural company Archer Daniels Midland Co., at a virtual conference in mid-June.

"My viewpoint is that U.S.-China trade, we still believe this is on track. We're expecting the fourth quarter to be a very strong quarter for our U.S. agricultural exports in soft commodities, particularly soybeans into China," he said.

Beijing has committed to boosting its purchases of U.S. agricultural and manufactured goods, energy and services by $200 billion over two years as part of a preliminary trade agreement.

The U.S. deficit in goods with China widened to a seasonally adjusted $27.9 billion in May, Thursday's report showed. Year to date, the goods deficit with China is nearly 25% narrower than in the same period of 2019.

A trade deficit subtracts from the calculation of gross-domestic-product growth. A widening of the trade deficit in both April and May suggests trade will be a drag on growth for the quarter as a whole.

Write to Harriet Torry at harriet.torry@wsj.com

 

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