US trade deficit narrows slightly in September; imports hit record high

By Lucia Mutikani

WASHINGTON, Nov 4 (Reuters) – The US trade deficit narrowed slightly in September, though imports increased to a record high amid an artificial intelligence spending spree by businesses.

The report from the Commerce Department on Wednesday also showed the US logged record goods trade deficits with several countries, including Mexico, Vietnam, Taiwan and South Korea, despite President Donald Trump’s aggressive tariffs.

Discontent over Trump’s policies, including tariffs, led to his Republican Party losing control of Congress to Democrats in the midterm elections on Tuesday. The US-Israeli war with Iran, which is fueling inflation, and resistance to data center construction to support AI also contributed to the electoral losses for Republicans.

The Middle East conflict is straining supply chains, and a survey from the Institute for Supply Management on Wednesday suggested more price increases for consumers were on the way.

“The massive imports of these goods to support the AI buildout have been a key factor behind the widening of the trade deficit to current near-record levels,” said Thomas Ryan, senior North America economist at Capital Economics. “But there is a question mark over whether this pace will continue following a string of victories for AI skeptics in gubernatorial races across the country last night.”

The trade shortfall contracted 0.7% to $105.0 billion, the Commerce Department’s Bureau of Economic Analysis and Census Bureau said. Economists polled by Reuters had forecast the deficit would be $108.0 billion.

They estimated that computers, peripherals and semiconductors accounted for roughly 61% of the trade deficit in September. The smaller-than-expected shortfall had no impact on the government’s advance gross domestic product estimate released last week, economists said.

The government estimated that imports cut 2.64 percentage points from GDP growth in the third quarter, the most since the first quarter of 2025, when businesses were front-loading orders because of Trump’s tariffs. The economy grew at a 3.4% annualized rate in the July-September quarter, the government said in its advance estimate of GDP last week. Trade has not contributed to GDP growth for four straight quarters.

Imports increased 1.2% to $426.6 billion in September, a record high. Goods imports rose 1.3% to $346.9 billion, also an all-time high. Capital goods imports shot up by $11.6 billion to a record high $158.0 billion as the AI buildout drew in imports of computers and computer accessories. Imports of semiconductors dropped by $1.2 billion.

“Less than two years ago the US was importing around $20 billion per month of these products,” said James Knightley, chief international economist at ING. “In September it was $87 billion. While there is lots of discussion about how much the tech/AI/data center investment blitz is boosting growth, much of the value added is coming from overseas.”

Imports of consumer goods rose by $2.4 billion, lifted by a $2.9 billion increase in pharmaceutical preparations. Consumer spending has remained resilient despite rising inflation. Imports of industrial supplies and materials fell $3.7 billion, reflecting declines in nonmonetary gold and crude oil.

Nonmonetary gold is excluded from the calculation of GDP.

Non-petroleum imports were the highest on record.

Stocks on Wall Street were mostly higher, though data center shares came under pressure as concerns over tighter AI regulation weighed. The dollar slipped against a basket of currencies. US Treasury yields fell.

SUPPLY CHAIN CONSTRAINTS RISE

Exports advanced 1.9% to $321.5 billion. Goods exports increased 2.5% to $211.0 billion. Exports of capital goods rose by $3.8 billion to an all-time high of $73.3 billion, driven by computers, computer accessories and civilian aircraft.

Exports of food and beverages rose $1.9 billion to $16.0 billion, the highest level since June 2022, boosted by soybean shipments. But industrial supplies and materials exports fell amid a decline in nonmonetary gold. Crude oil exports, however, rose $1.2 billion. The US is a net exporter of oil.

The goods trade deficit tightened 0.5% to $135.9 billion in September. But when adjusted for inflation, the goods trade deficit widened $3.5 billion, or 3.0%, to $119.5 billion.

Imports of services increased $0.8 billion to a record high of $79.7 billion amid rises in travel and transport services. Exports of services advanced $0.7 billion to $110.5 billion, also an all-time high. They were lifted by gains in travel services and the use of intellectual property.

A separate survey from the ISM showed tariffs and rising fuel costs causing a deterioration in delivery performance by suppliers to the services sector in October. Steve Miller, ISM Services Business Survey Committee chair, noted that commentary on supply chain constraints rose significantly over the month.

“Many respondents indicated they are not yet seeing the full impact of these cost escalations or have not passed them through to customers,” said Miller. “This indicates that more pricing pressure is on the way if oil and tariff cost impacts are not mitigated, even if they do not increase from current levels.”

The government last week reported an acceleration in inflation in September. Economists expect inflation to continue to run above the Federal Reserve’s 2% target into 2027. The US central bank last Wednesday left its benchmark overnight interest rate within the 3.75%-4.00% range.

A rate hike is expected in December. The ISM survey’s measure of supplier deliveries jumped to 56.7 from 53.2 in September. A reading above 50 indicates slower deliveries. Deliveries have slowed for 23 consecutive months, keeping input prices elevated.

The ISM’s nonmanufacturing Purchasing Managers’ Index dipped to 54.5 last month from 54.9 in September. A reading above 50 indicates growth in the services sector, which accounts for more than two-thirds of US economic activity.

But its gauge of new orders received by services businesses decreased to 55.9 from 59.8 in September.

“Supplier delays are worsening, order backlogs are building, and price pressures remain stubbornly high,” said Priscilla Thiagamoorthy, a senior economist at BMO Capital Markets. “Resilient growth and sticky inflation remain an uncomfortable mix for the Fed.”

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama, Paul Simao and Andrea Ricci )