US goods trade deficit surges to 2-1/2-year high on jump in imports

The U.S. trade deficit in goods widened to a 2-1/2-year high in September amid a surge in imports, prompting some economists to trim their economic growth estimates for the third quarter.

Nonetheless, the jump in imports reported by the Commerce Department on Tuesday was likely a sign of strong domestic demand, with consumer spending expected to have been the main driver of growth last quarter. The hit on GDP from trade is likely to be blunted by a rise in retail inventories.

The government is scheduled to publish its advance gross domestic product estimate for the July-September quarter on Wednesday, which is expected to show trade remained a drag on growth for the third straight quarter.

"By themselves, the trade numbers should trim nearly a percentage point from the 'net exports' contribution to our previous estimate of third-quarter GDP," said Lou Crandall, chief economist of Wrightson ICAP.

"However, there was a partial offset in retail inventories, so we are lowering our forecast for tomorrow's advance estimate from a 3.2% annualized rate to 2.7% pace."

The goods trade gap increased 14.9% to $108.2 billion last month, the highest level since March 2022, the Commerce Department's Bureau of Economic Analysis said.

Imports of goods rose 3.8% to $282.4 billion, also the highest level in 2-1/2 years, likely as businesses stockpiled goods in anticipation of a dockworkers strike, which was short-lived. They were boosted by a 5.8% surge in imports of consumer goods. Foods imports increased 4.6%.

Imports of capital goods rose 3.1%, which should bode well for business spending on equipment. There were also solid increases in imports of industrial supplies, which include petroleum, as well as motor vehicles, engines and parts.

Most of the imports ended up as inventories at retailers, which should limit the hit on trade. The economy likely grew at a brisk 3.0% annualized rate last quarter, a Reuters survey of economists showed, matching the second quarter's pace.

Exports of goods fell 2.0% to $174.2 billion. They were pulled down by a 6.3% decline in shipments of consumer goods. Exports of industrial supplies also fell as did those of capital goods. But exports of food shot up 4.8%.

Wholesale inventories dipped 0.1% last month after increasing 0.2% in August. Retail inventories, however, advanced 0.8% after rising 0.7% in August. Motor vehicle and parts supplies increased 2.1% after climbing 1.1% in August.

Excluding motor vehicles and parts, retail inventories nudged up 0.1% after rising 0.5% in August. This component goes into the calculation of GDP.

"Rising retail inventories worry us. It is not so much, but this can only mean that consumer demand did not match retailers expected sales," said Carl Weinberg, chief economist at High Frequency Economics. "We are watching ... however, a rise in inventories does support GDP growth."