US trade deficit widens sharply in May as capital goods imports hit record high

The U.S. trade deficit widened sharply in May as an artificial intelligence investment boom helped to drive imports of capital goods to a record high, suggesting that trade remained a drag on gross domestic product in the second quarter.

The trade gap jumped 42.2% to $77.6 billion, the Commerce Department's Bureau of Economic Analysis and Census Bureau said on Tuesday. Economists polled by Reuters had forecast the deficit at $78.5 billion.

Imports increased 3.3% to $395.3 billion, with imports of capital goods soaring to a record high $128.0 billion.

Businesses are spending heavily on AI, whose buildup is heavily reliant on imports. Exports dropped 3.2% to $317.7 billion, though shipments of petroleum were the highest on record amid the Middle East conflict. The U.S. is a net oil exporter.

Trade has subtracted from GDP for two straight quarters. The Atlanta Federal Reserve's model is currently forecasting GDP increasing at a 1.2% annualized rate in the second quarter. The economy grew at a 2.1% pace in the January-March quarter.