EconomyStockU.S. goods trade deficit rises; inventories increase

2 years ago546 min
imageEconomic Indicators1 hour ago (Sep 29, 2020 09:25AM ET)

(C) Reuters. Outbreak of the coronavirus disease (COVID-19) in Los Angeles, California

By Lucia Mutikani

WASHINGTON (Reuters) – The United States’ trade deficit in goods increased in August, with imports surging as businesses rebuild inventories which were depleted early in the COVID-19 pandemic, suggesting trade could be drag on economic growth in the third quarter.

Still, the widening in the goods trade gap reported by the Commerce Department on Tuesday did not change expectations for a record jump in gross domestic product in the third quarter after output plunged in the April-June period at its steepest pace since 1947.

The economy got a boost over the summer from the reopening of businesses and a rescue package from the government. But new coronavirus cases are rising and money from the government for businesses and the unemployment is running out, resulting in slowing economic activity heading into the fourth quarter.

The goods trade gap increased 3.5% to $82.9 billion last month. Imports of goods rose 3.1% to $201.3 billion, eclipsing a 2.8% increase in goods exports to $118.3 billion.

The rise in imports last month was led by consumer goods, which increased 7%. There were also strong gains in imports of food, capital and consumer goods. But imports of industrial supplies fell 4.6%.

Exports of industrial supplies and food rose. But shipments of motor vehicles and parts, capital goods and consumer goods fell.

Trade could subtract from GDP growth in the third quarter for the first time since the second quarter of 2019. But with much of the imports going to replenish inventories, the hit to GDP growth from the bigger goods trade deficit could be modest.

The Commerce Department also reported on Tuesday that retail inventories increased 0.8% in August after rebounding 1.2% in July. Motor vehicle and parts inventories gained 0.6%. Retail inventories, excluding motor vehicles and parts, the component that goes into the calculation of GDP, shot up 0.9% after climbing 0.6% in July.

Wholesale inventories rebounded 0.5% in August after dipping 0.1% in the prior month. Inventory accumulation is expected to contribute to GDP growth in the third quarter after subtracting from output for five straight quarters.

U.S. goods trade deficit rises; inventories increase

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