WRAPUP 1-US trade deficit narrows slightly in September; imports hit record high

The US trade deficit narrowed slightly in September, ​though imports increased to a record high amid robust domestic ‌demand. The ​report from the Commerce Department on Wednesday also showed the US logged record goods trade deficits with several countries, including Mexico, Vietnam, Taiwan and South Korea, despite President Donald Trump's aggressive tariffs.

Discontent over Trump's policies, including tariffs, led to his Republican Party losing control ‌of Congress to Democrats in the midterm elections on Tuesday. Domestic demand is being fueled by resilient consumer spending and an artificial intelligence spending spree by businesses. Resistance to data center construction also contributed to the electoral losses for Republicans. "The massive imports of these goods to support the AI buildout have been a key factor behind the widening of the trade deficit to current near-record levels," ‌said Thomas Ryan, senior North America economist at Capital Economics. "But there is a question mark over whether this pace will continue following a string of victories for AI skeptics ‌in gubernatorial races across the country last night."

The trade shortfall contracted 0.7% to $105.0 billion, the Commerce Department's Bureau of Economic Analysis and Census Bureau said. Economists polled by Reuters had forecast the deficit would be $108.0 billion. CAPITAL GOODS IMPORTS AT RECORD HIGH

Imports increased 1.2% to $426.6 billion in September, a record high. Goods imports rose 1.3% to $346.9 billion, also a record high. Capital goods imports shot up by $11.6 billion to a record high of $158.0 billion as the ⁠AI buildout drew ​in imports of computers and computer accessories. Imports ⁠of semiconductors dropped by $1.2 billion. Imports of consumer goods rose by $2.4 billion, lifted by a $2.9 billion increase in pharmaceutical preparations. Imports of industrial supplies and materials fell $3.7 billion, reflecting declines in nonmonetary gold and crude oil. Nonmonetary gold ⁠is excluded from the calculation of gross domestic product.

Non-petroleum imports were the highest on record. Exports advanced 1.9% to $321.5 billion. Goods exports increased 2.5% to $211.0 billion. Exports of capital goods rose by $3.8 billion to an ​all-time high of $73.3 billion, driven by computers, computer accessories and civilian aircraft.

Exports of food and beverages rose $1.9 billion to $16.0 billion, the highest level since June 2022, boosted ⁠by soybean shipments. But industrial supplies and materials exports fell amid a decline in nonmonetary gold. Crude oil exports, however, rose $1.2 billion. The US is a net exporter of oil. The goods trade deficit tightened 0.5% to $135.9 billion in September. But ⁠when ​adjusted for inflation, the goods trade deficit widened $3.5 billion, or 3.0%, to $119.5 billion in September. The government estimated last week that imports cut 2.64 percentage points from GDP growth in the third quarter, the most since the first quarter of 2025, when businesses were front-loading orders because of Trump's tariffs.

The economy grew at a 3.4% annualized rate in the July-September ⁠quarter, the government said in its advance estimate of GDP last week. Trade has not contributed to GDP growth for four straight quarters. Imports of services increased $0.8 billion to a ⁠record high of $79.7 billion amid rises in travel and ⁠transport services. Exports of services advanced $0.7 billion to $110.5 billion, also an all-time high. They were lifted by gains in travel services and the use of intellectual property.

"Looking ahead, net exports are still likely to be a drag on fourth-quarter GDP growth, even as robust business ‌investment continues to support broader economic ‌activity," said Priscilla Thiagamoorthy, a senior economist at BMO Capital Markets.