The U.S. trade deficit narrowed more than expected in August as exports increased solidly, likely positioning trade to support economic growth in the third quarter.

The trade deficit contracted 9.9% to $58.3 billion, the lowest level since September 2020, the Commerce Department said on Thursday. Data for July was revised to show the trade gap rising to $64.7 billion instead of $65.0 billion as previously reported. Economists polled by Reuters had forecast the trade deficit shrinking to $62.3 billion in August.

Exports of goods and services increased 1.6% to $256.0 billion. Goods exports shot up 1.8% to $171.5 billion, with shipments of capital goods hitting a record high. But exports of foods, feeds and beverages were the lowest since August 2020. At $84.5 billion, exports of services were the highest on record.

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Imports of goods and services fell 0.7% to $314.3 billion. Goods imports dropped 0.9% to $256.0 billion, potentially flagging softening domestic demand amid higher borrowing costs.

The services surplus at $26.2 billion was the highest since March 2018. Trade made no contribution to the economy's 2.1% annualized growth rate in the second quarter.