Losing balance: US trade deficit widens in September

Summary

International trade flows remain volatile on a month-to-month basis. Cutting through the noise, both exports and imports continue to expand as demand remains resilient. The outcome of the U.S. presidential election will determine the path of trade policy, but net exports are set to remain a headwind to domestic output growth.

Not your usual widening

Another whipsaw is in the books for U.S. trade. The international trade balance contracted $13.6 billion to -$84.4 billion in September (chart). That is not your usual widening—it marks the largest monthly drop in the deficit in two-and-a-half years and the third largest on record. The steep decline was driven by a pullback in exports (-1.2%) and a jump in imports (+3.0%). Today's report largely confirms last week's GDP data and continues to demonstrate the resilience of domestic demand.

Real GDP growth clocked a 2.8% annualized pace of growth in the third quarter, largely driven by consumer and government spending. Real exports expanded at a solid 8.9% rate over the quarter, but it was not enough to outstrip real imports, which rose 11.2%. The outturn led net exports to subtract 0.56 percentage points from real GDP growth—a much larger drag than the July and August trade data suggested.

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