US DATA: Trade Deficit Widens As Industrial, Capital Goods Imports Pick Up

The goods trade deficit widened to an unexpected extent in July's advance report, to $103.6B ($90.2B expected, $84.9B prior). That was the biggest deficit since March's record tariff-induced shortfall, and notably up from a monthly average $89.0B over Q2.

• The driver was imports, which jumped 7.1% M/M for the biggest percentage increase since January; exports were relatively stable with not much to catch the eye (at -0.1% M/M, they declined for a 3rd consecutive month and are now at a 6-month low).
• Breaking down the $18.6B jump in imports (to $281.5B, a 4-month high), around two-thirds of the rise came from the industrial supplies & materials category, which picked up to $60.7B from $48.4B prior for a 4-month high. This 25% M/M rise is reminiscent of increases earlier in the year that were in large part driven by (monetary) gold imports. That may be partly the case again in July looking at a rise in Comex gold inventories, but there may also be other elements at play including copper imports surging amid tariff concerns. We will know more details after next week's full trade release.
• Additionally, capital goods imports rose over $4B to a new nominal record  ($95.9B), accounting for most of the rest of the import increase, with the 4.8% M/M rise the fastest since January. Outside of that, consumer goods imports notably ticked up 2.1% for the first increase since March, and autos imports continue to sag.
• This leaves the 3-month moving average trade balance hovering in the high 3% of GDP area, around where it was for most of 2023-2024 before rising above 4% in 2024 and bursting above 6% in Q1 amid tariff front-running.
• It's running at around 4.4% of GDP a 12-month basis, again elevated from the high 3% levels in 2023-24 but down from the 4.7% peak in March.