June Trade Deficit Expands Less than Forecasts

A jump in oil prices allowed imports to advance faster than exports in June, causing the US trade deficit to expand compared to May, yet overall the debt was smaller than analysts had expected.

The total deficit in goods and services was $27.0 billion in June, up from a decade low of$26.0 billion in May, the Commerce Department reported. The median forecast beforehand was $28.5 billion.

Imports advanced by $3.5 billion in the month to come in at $152.8 billion, largely on account of oil prices climbing in the month. Crude oil jumped from $51.21 per barrel in May to $59.17 in June, the highest level since November.

Exports were boosted by a weak US dollar, but the $2.4 billion advance to $125.8 billion failed to keep pace with the rise in imports. Exports of consumer goods dropped by $1.7 billion in the month, but most other categories improved, including industrial supplies (up $1.2 billion), and ex-auto capital goods (up $0.4 billion).

When oil is excluded from the equation, the volume of imports actually fell to its lowest level in nearly six years. Moreover, when inflation is taken into account, the trade deficit  actually sank to $35.9 billion, the lowest level since December 1999.

Economists said the smaller than expected deficit should help second-quarter GDP get revised upwards from the -1.0% decline reported two weeks ago.

“With exports rising for the second straight month, it appears that trade might add a little more to real GDP growth in the second quarter than the originally reported contribution of 1.4 percentage points,” said analysts from RDQ Economics. 

The report is also being seen as further evidence that the recession is coming to a close, not just in the US, but globally.

“The rise in exports may be a sign that global markets are beginning to stabilize and it is interesting that, over the last year, the least weak market for U.S. exports has been China,” RDQ added.

Noting that imports of consumer goods fell in the month, Deutsche Bank’s Joseph LaVorgna said the economy may have to rely on businesses restocking inventory for GDP to begin growing again.

“The trade data appear to be consistent with our view that consumer spending will play a more limited role in the early stages of the economic recovery, while business investment and inventory restocking drive output,” he said.

As for exports, they should continue to advance as the global economy recovers and the US dollar remains weak, suggested Jay Bryson from Wells Fargo.

“Growth in the rest of the world is picking up,” he said before the release. “Across Asia, we're seeing a pickup and we should see export growth.”

Looking ahead, BMO’s Sal Guatieri said the report was consistent with growth this year.

“With the dollar on the defensive and external demand likely to rival domestic spending, the trade deficit should continue to narrow, supporting a mild U.S. economic recovery.”

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