Trade Will Be a Tailwind to GDP Growth in the Second Half of 2022

• The U.S. nominal trade deficit narrowed in June to $79.6 billion from $84.9 billion in May, according to the Census Bureau.
• The nominal goods deficit narrowed to $99.5 billion in June from $104.4 billion in May while the nominal services surplus increased to $19.9 billion in June from $19.5 billion in May.

• Trade will be a tailwind for GDP growth in the second half of 2022.

The trade deficit is falling, in line with PNC’s forecast. The U.S. trade deficit in goods and services narrowed 6.2% in June to $79.6 billion from a downwardly-revised $84.9 billion in May (reported as $85.5 billion in the prior release). The consensus expectation was for a narrowing to $80.0 billion. The decline in June was driven by an uptick in exports and a slight decline in imports. After widening to a peak of $107.7 billion in March, the nominal trade deficit declined in April, May, and June. 

The goods deficit narrowed to $99.5 billion in June from $104.4 billion in May while the services surplus increased to $19.9 billion from $19.5 billion in May. The goods deficit declined in June to the lowest level this year but is a massive 58.9% above the pre-pandemic level. 

Exports in June rose 1.7% in June while imports fell 0.3%. June’s exports of industrial supplies and materials ($78.2 billion) were the highest on record. On an inflation-adjusted basis, the trade deficit narrowed to in June to $113.2 billion, the lowest level this year. The real trade deficit was a record-high $135.8 billion in March. 

The trade deficit widened to record levels during the pandemic driven by a shift in consumer spending from services to durable goods. After subtracting from growth in the first quarter of this year, trade added 1.4 percentage points to growth in the second quarter.

The U.S. economy surprisingly contracted in the first half of this year, but it is not in recession. Consumer demand remains solid and consumer spending on services should lift the economy in the second half of 2022. A slowing in demand for durable goods will likely discourage inventory accumulation and contribute to a lower goods deficit in the second half of 2022. PNC expects trade to be a tailwind to GDP growth in the second half of 2022.

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