US goods trade deficit surges to $105.8B as exports slump 5.4%

The US merchandise-trade deficit widened to its largest in more than a year in May as a 5.4% drop in exports of industrial supplies and crude oil overwhelmed a more modest rise in imports, Commerce Department data showed Friday.

The goods trade gap expanded 27.4% from the prior month to $105.8 billion, far exceeding the $85.0 billion median estimate in a Bloomberg survey of economists. Imports rose 3.6%, or $10.9 billion, to $313.4 billion, while exports fell $11.8 billion to $207.7 billion.

The decline in exports was broad-based, led by industrial supplies — a category that includes crude oil and petroleum products — as well as consumer goods and capital equipment. The data, which are not adjusted for inflation, suggest weakening external demand for US-produced goods even as domestic consumption kept import volumes elevated.

Trade has been a drag on gross domestic product for two straight quarters, and the May figures raise the risk that economists will trim their second-quarter growth estimates. GDP tracking models have been converging around a 2.5% annualized rate, down from 2.1% in the first quarter and a 0.5% pace in the October-December period.

Export Weakness Signals Broader Softening

The 5.4% monthly decline in goods exports marks the steepest drop since the early months of 2025 and points to softening demand from key US trading partners. The industrial-supplies category, which accounts for roughly a quarter of US goods exports, was the primary drag as crude oil and petroleum product shipments fell amid lower global energy prices.

Brent crude futures fell 3.3% to $72.76 a barrel on Friday, heading for a weekly decline of about 9.7%, while West Texas Intermediate slid 3% to $69.77. The drop in energy prices has weighed on the dollar value of US petroleum exports, compounding the volume effect from softer global demand.

Consumer goods exports also declined, reflecting weaker spending power in economies still grappling with elevated interest rates. Capital goods — a category that includes machinery and industrial equipment — posted a smaller but still negative contribution.

Import Growth Reflects Precautionary Stockpiling

On the import side, the 3.6% increase was driven by businesses accelerating purchases of intermediate goods and raw materials to guard against potential supply disruptions and price spikes linked to the Middle East conflict. The import surge pushed the deficit well above the $85 billion consensus and marked the widest goods trade shortfall since early 2025.

The dynamic mirrors patterns seen during previous geopolitical shocks, when companies front-loaded imports to build inventory buffers. The last time the goods trade deficit exceeded $100 billion was in the first quarter of 2025, when businesses similarly stockpiled ahead of tariff escalations.

Implications for GDP and Policy

The widening trade gap poses a headwind for second-quarter GDP, as net exports subtract from the growth calculation. The Atlanta Fed's GDPNow tracker and other nowcasting models had been pointing to growth around 2.5%, but the May trade data may push those estimates lower. A $20.8 billion swing above consensus on the goods deficit alone could shave 0.3 to 0.5 percentage points off the final Q2 GDP print if the trend persisted through June.

For the Federal Reserve, the data presents a mixed picture. Weaker export demand signals a cooling global economy, which could reinforce the case for rate cuts later this year. But the resilience of imports — and by extension domestic demand — suggests the US economy is still running above trend, giving policymakers reason to hold steady. Overnight index swaps currently price roughly two quarter-point cuts by December, with the next Fed decision scheduled for July 29-30.

This article is for informational purposes only and does not constitute investment advice.