US trade deficit shrinks in August led by weaker demand for computers

America's shortfall in trade with the rest of the world narrowed in July, albeit due in part to weaker import demand.

According to the Department of Commerce, the US deficit on trade in goods and services shrank by 2.7% month-on-month to reach $54.0bn, although year-to-date the deficit was 8.2% or $28.2bn wider.

Economists had forecast the deficit would remain unchanged versus the previous month at -$55.2bn.

In comparison to June, total exports grew by 0.6% to $207.4bn while imports dipped by 0.1% to $261.4bn.

The bulk of the decline in the total deficit came from the goods balance, where the deficit dropped by $1.6bn $73.7bn, while the surplus on the services balance declined by $100.0m to $19.7bn.

Nonetheless, goods imports decreased by $400.0m in July to reach $211.8bn - a possible sign of weaker demand in the US.

The lion's share of the drop was accounted for by a $1.5bn fall in purchases of capital goods from abroad and a decrease of $1.4bn in those of computers.

Commenting on the figures, Ian Shepherdson, chief economist at Pantheon Macroeconomics, pointed to the 10-year low in the ISM institute's export orders index and said that the improvement in the deficit was unlikely to last.

"The impending drop in exports means that we have to expect net foreign trade to be a drag on overall economic growth," Shepherdson said.

"The third quarter hit probably will be modest, given that the deficit for the first month of the quarter was a bit below the second quarter’s average, but the outlook is grim."

For their part, economists at ING highlighted how the bilateral trade deficit with China, at $32.8bn, had shrunk from $37.0bn in 2018 and $33.6bn in 2017.

"Creating a 2019 trade deficit estimate based on the Jan-July run rate, the deficit with China is on track to be the smallest since 2013," sad ING's James Knightley.

"This may be enough for the President to claim that his tactics are working, but it is also likely to raise concerns within the EU and Mexico that they could once again face closer scrutiny given the annual US trade deficit with these economies is on course to widen out to new all-time highs in 2019."