The U.S. trade deficit of goods and services, which measures exports minus imports, declined by $4.6 billion to $70.1 billion in July as domestic demand for foreign goods slowed and foreign countries’ needs for U.S. goods rose.
Even though this number was in line with the advanced goods trade balance released last week, the balance of services in the data released by the government on Thursday surprisingly dropped by 11.8% to $17.7 billion, the lowest number since 2012, offsetting the improvement from the goods trade.
The decline in the service trade surplus was driven by Americans’ increasing appetite for international travel, reflected by the rise in monthly imported services in travel and passenger fares, which were up by 23.7% and 15.8% respectively.
At the same time, exported services stalled in July also because of the two categories: travel, which was down by 5.4%, and passenger fares, down by 3.1%.
This contrasted with the notion that the service trade surplus would help cut into the record-high trade deficit in June.
Beneath the headlines, exports of automotive, consumer goods and capitals drove the rise in the total goods export balance, increasing by 5.3%, 4.5% and 2.2%, respectively. All imported goods categories declined in July compared to the prior month except for automotive, which increased by 3.8%.
Overall, we expect that the July reading of the U.S. trade balance will bolster gross domestic product growth in the third quarter, which has been revised down recently amid the resurgence of the coronavirus, supply chain pressure and, over this past week, Hurricane Ida.
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