US trade deficit widens in July; capital goods imports hit record high

The U.S. trade deficit widened sharply in July as strong ​domestic demand boosted imports, positioning trade to exert another ​drag on economic growth in the third quarter. The ‌trade ​shortfall increased 24.4% to $88.6 billion, the Commerce Department's Bureau of Economic Analysis and Census Bureau said on Thursday. Economists polled by Reuters had forecast the deficit at $90.0 billion.

The deterioration ‌was flagged by data last week showing an import-driven surge in the goods trade deficit in July. Domestic demand soared in the second quarter, a combination of both strong consumer spending and business investment in artificial intelligence. Demand is, however, being satiated ‌with imports, helping to widen the trade deficit.

Imports increased 2.8% to $399.3 billion in July. Goods imports shot up 3.7% to $320.6 ‌billion. Imports of capital goods jumped $14.4 billion to a record high $140.3 billion, reflecting strong increases in computers, computer accessories and semiconductors, likely related to the AI buildout. But imports of industrial supplies and materials, which include petroleum, dropped $1.8 billion. Crude oil imports fell

$1.8 billion amid lower prices. Exports decreased 2.1% to $310.7 ⁠billion, ​with goods shipments dropping 3.0% to $201.0 ⁠billion. They were led by an $8.7 billion decline in industrial supplies and materials, mostly crude oil as well as nonmonetary gold, which is excluded in ⁠the calculation of gross domestic product. Capital goods exports, however, increased $1.9 billion. Consumer goods exports rose $1.7 billion, lifted by pharmaceutical preparations.

The goods ​trade deficit widened 17.3% to $119.6 billion in July. When adjusted for inflation, the goods trade deficit increased 12.7% to $106.4 ⁠billion. Trade subtracted 1.14 percentage points from GDP growth in the April-June quarter. The economy grew at a 1.5% annualized rate last quarter. Imports of services ⁠decreased $0.6 ​billion to $78.7 billion in July, pulled down by charges for the use of intellectual property. Imports of transport services fell but those of travel services increased. Exports of services dipped $0.4 billion to $109.7 billion amid declines in travel, financial and ⁠transport services. Charges for the use of intellectual property rose as did exports of other business services.

Despite aggressive tariffs on ⁠imports, the United States posted record ⁠goods trade deficits with Mexico, Vietnam, Taiwan, Thailand, South Korea and Malaysia. The goods trade balance with Switzerland swung into deficit, while the shortfall with Canada decreased $3.7 billion to $3.2 billion in ‌July. The U.S. ‌and Canada are embroiled in a trade war.