U.S. Trade Deficit Narrows On Stronger Dollar and Cheaper Oil

The U.S. trade deficit in goods narrowed for the fifth consecutive month as oil prices plunged and the strong dollar made imported goods less expensive for U.S. consumers.

The trade deficit in goods contracted 3.2 percent from $90.2 billion in July to $87.4 billion in August, the Census Bureau said.

The figures are nominal, meaning not adjusted for changing prices.

The decline in goods imports was driven by a 6.4 percent decline in imported industrial supplies. That category includes petroleum products. The fall in oil from an average of $111 a barrel in July to around $100 a barrel in August likely explains the nominal decline in industrial supplies. There is also evidence of some demand destruction in gasoline, with people driving less because of high prices at the pump.

There was also a 1.8 percent decrease in capital goods imports. This may reflect the strengthening of the dollar, which hit a 20-year high in August, pushing down the price of imported goods. Analysts at Bank of America said the decline “may reflect weakening in capex plans in the face of higher economic uncertainty.” Surveys by Federal Reserve Banks in Richmond, Dallas, and Philadelphia, however, showed capital expenditures by manufacturers rose in August.

Consumer goods imports fell by 0.2 percent, the data showed.  Automotive imports rose 3.8 percent.

Exports fell 0.9 percent. Here too the decline in the price of oil likely played a role, with industrial supply exports falling 3.5 percent. Automobile exports fell a significant 8.9 percent, likely a reflection of the strong dollar pricing foreign consumers out of the market for U.S. made cars. U.S. capital goods exports, however, rose 0.4 percent. Consumer goods exports jumped eight percent.

Prior to the five-month long decline, the trade peaked at a record $125. billion.

The same report showed whole sale inventories were up 1.3 percent and retail inventories up 1.4 percent. Both were higher than expected.