Net export drag in Q2 despite narrowing in May trade deficit

Summary

The U.S. trade deficit widened to $69.0 billion in May amid a plunge in import growth. Net exports are still tracking to be a considerable drag on second-quarter growth, and the underlying import data demonstrate the domestic rotation away from goods and to services.

What a drag

The U.S. trade deficit narrowed to -$69.0 billion in May amid a plunge in import growth. Imports slid 2.3% during the month, and while exports also declined, they fell by a more modest 0.8%. Monthly trade flows continue to be unusually volatile as trade finds its footing after pandemic-related disruption. Both exports and imports have been down in three of the first five months of this year, and in cutting through the monthly noise the outcome has been a fairly modest move in the overall trade deficit (chart). May marks the largest decline in imports in six months and somewhat reflects slower domestic demand for goods.

Despite the pullback in imports, net exports are still tracking to have been an overall drag on second-quarter GDP growth. We currently have net exports shaving about 1.4 percentage points off of second-quarter growth, which remains in the ballpark of expectations, though today's data for May suggest the drag will be a bit smaller than that. In real terms, imports are tracking to have slipped around 1% during the quarter, while exports look to be down around 10%.

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