The numbers: The U.S. trade deficit in goods narrowed for the fifth month in a row to $87.4 billion, reflecting reduced demand for imports and the negative effects of a strong dollar on sales of American-made products.
The trade gap in goods contracted 3.2% from $90.2 billion in July, the Census Bureau said.
Just five months ago, the gap peaked at a record $125. billion. Now it’s slid to the lowest level since October 2021.
An advanced estimate of wholesale inventories, meanwhile, showed a 1.3% increase in August. Retail inventories rose 1.4% in the month, according to an early estimate.
Lower trade deficits and rising inventories both add to gross domestic product, the official scorecard for the economy. The third quarter could show an increase in GDP after two straight declines based on the most recent economist figures.
Big picture: The strong dollar is dinging U.S. exporters. Foreigners can’t buy as many American goods since they are more expensive.
The opposite is the case for U.S. customers. They can afford to buy more imports since an uber-strong dollar makes foreign goods a lot cheaper.
The big question is whether Americans keep spending at current levels — and buying as many imports — as the economy slows.
Key details: Imports of goods dropped 1.7% in August to $267.1 billion. The U.S. imported fewer consumer goods and industrial supplies. The declining price of imported oil was a big factor.
Exports dropped 0.9% to mark the second decline in row after they hit a record in June. The U.S. shipped fewer autos and industrial supplies. Falling prices of many materials may have also contributed.
The strong dollar is likely to have an outsized influence for months to come, but it’s unclear how it will affect the size of trade deficits.
Chronically high trade deficits exploded during the pandemic and hit a record high earlier this year, but they’ve slowly been falling closer to pre-crisis levels.
Looking ahead: “Exports will see the effects of both slowing foreign demand and a stronger dollar while imports will be impacted by weakening domestic demand, as global economies feel the effects of central bank tightening,” said Rubeela Farooqi, chief U.S. economist of High Frequency Economics.