July 6, 2017 – The International Trade Balance looks at the U.S. Economy’s transactions with trading partners around the world for goods, services, income, and financial claims on liabilities. It is the major indicator for foreign trade and has implications for the net exports portion of GDP. A positive trade balance represents more exports than imports while the opposite is true for a negative balance.
The trade deficit in May fell to 46.5 billion, from April’s deficit of 47.6 billion. The deficit came in slightly above the consensus of 46.2 billion. Exports rose 0.4% to 192.0 billion while imports came in 0.1% lower to 238.5 billion. Exports of goods was also up 0.2% to 127.2 billion with auto exports contributing a $0.6 billion increase.
The decrease in the May trade balance shows the demand for foreign goods decreasing and the demand for U.S. goods getting stronger. A large increase in exports is a benefit to the economy in lowering the trade deficit but a large increase in exports to a particular country can show economic strength in that country leading to investment opportunities. According to the U.S. Dollar Index (DXY), the value of the U.S. dollar dropped from 99.15 to 96.98 in May. This means the U.S. dollar became weaker, making it more expensive to import goods from other countries and cheaper for other countries to buy U.S. goods. This is reflected in May’s trade deficit when imports came in 0.1% lower and exports were 0.4% higher. The influx of other countries buying U.S. goods and the U.S. not importing as many goods from other counties contributed to the decrease in the trade balance for May. Furthermore, there is a two-month lag time, so any policy changes will not show up immediately in this report.