A sharp drop in exports made for the steepest US goods deficit since May 2022, which is bad news for second-quarter US GDP. May 2024's deficit of $100.6 billion is much deeper than Econoday's consensus for $95.6 billion and outside Econoday's consensus range where the low estimate was $100.4 billion. May's goods deficit is $2.6 billion deeper than April's deficit which already was a very steep $5.8 billion deeper than March's deficit.

Exports dropped $2.0 billion on the month in May to a subdued $166.7 billion for the lowest total since July last year. Declines were posted nearly across all categories especially for industrial supplies and including foods, feeds & beverages and also capital goods, the latter a usual strength for the US.

The trade imbalance would have been even greater if not for a 0.7 percent decline for imports to $257.3 billion where an increase for industrial supplies was outmatched by declines for consumer goods, capital goods, and also vehicles, the latter however following sharp gains in prior months.

This report may well shake up forecasts for second-quarter GDP though net exports are only one component of the report. Note that consumer spending is the dominant GDP component and last week's results for retail sales, up only 0.1 percent in May after falling 0.2 percent in April, aren't supportive either.

The US goods deficit (Census basis) is expected to narrow by $2.4 billion to $95.6 billion in May after deepening by $5.7 billion in April to $98.0 billion.

This monthly report offers advance import and export data on the goods components of the monthly trade report. Goods make up roughly two-thirds of the nation's exports and roughly three-quarters of imports.

Note that data in the advance goods report are accounted for on a census basis and can differ slightly from subsequent data in the international trade report where goods data are accounted for on a balance of payment basis to adjust for changes in cross-border ownership.

Changes in the levels of imports and exports, along with the difference between the two (the trade balance), are valuable gauges of economic trends here and abroad. While these trade figures can directly impact all financial markets, they primarily affect the value of the dollar in the foreign exchange market.

Imports indicate demand for foreign goods here in the United States. Exports show foreign demand for U.S. goods. The dollar can be particularly sensitive to changes in the chronic trade deficit run by the United States, since this trade imbalance creates greater demand for foreign currencies.

Market reaction to this report is complex. Typically, the smaller the trade deficit, the more bullish it is for the dollar. Also, stronger exports are bullish for corporate earnings and the stock market. Like most economic indicators, the trade balance is subject to substantial monthly variability, especially when oil prices change.

It is also useful to examine the trend growth rates for exports and imports separately because they can deviate significantly. Trends in export activity reflect both the competitive position of American industry and the strength of domestic and foreign economic activity. U.S. exports will grow when: 1) U.S. product prices are lower than foreign product prices; 2) the value of the dollar is relatively weaker than that of foreign currencies; 3) foreign economies are growing rapidly.

Imports will increase when: 1) foreign product prices are lower than prices of domestically-produced goods; 2) the value of the dollar is stronger than that of other currencies; 3) domestic demand for goods and services is robust.