What's Driving the Trade Deficit

America's trade deficit dropped significantly in May, the Commerce Department reported yesterday, falling to a level of $48.7 billion, which is the lowest it's been since February. Most of the time, a narrowing of the trade deficit means that either we exported more goods and services, imported less, or both. This time, though, the primary trigger doesn't seem to have been either one of those.

With the price of oil dropping recently, the cost of importing goods has been dropping along with it. Not only do we import a lot of oil for energy purposes, but a big chunk of costs for other imports involves transporting items from far distances. In fact, the Labor Department released another report showing that the price of imports fell 2.7 percent in June. The biggest factor: The cost of fuel imports declined by more than 10 percent. Overall, the decline in the cost of imports was the largest in more than three years.

Going back to May, the amount of money we spent importing goods decreased by $1.6 billion, a big driver of the falling trade deficit. But that doesn't mean the amount of goods we imported or the value fell - just how much we spent for them.