Trade-deficit plunge brightens economic picture
The U.S. trade deficit shrank so much in June that estimates of the overall economy's second-quarter growth may be revised upward by as much as half, economists said Tuesday.
The Commerce Department reported that the trade deficit shrank 22% to $34.5 billion in June, reversing a 10% gain in May. The shift included fewer product imports from China and elsewhere, less importation of crude oil, and more exports of finished goods, the government said.
The shift was so large that the second-quarter growth of the entire economy may have been as high as 2.5% to 2.7%, instead of the 1.7% preliminary estimate released last month, IHS Global Insight economist Greg Daco said. The government usually revises its estimate of gross domestic product twice each quarter, as late-breaking data like June's trade report become available.
"Boy, did the situation turn around sharply,'' said Joel Naroff, president of consulting firm Naroff Economic Advisors. "Instead of widening, it now looks like the second quarter trade deficit narrowed. This could add as much as one full percentage point to growth. So the weak [second-quarter GDP] number may turn out to have been pretty good.''
The biggest single gain was the $2 billion drop in oil imports, which JPMorgan Chase economist Daniel Silver chalked up to the ongoing exploitation of newly commercialized reserves embedded in shale rock and tar sands. Also, the modest improvement in Europe's economy helped drive the first increase in exports to the Continent in 10 months, Silver said.
U.S. aircraft manufacturers also had a good month, and exports of finished petroleum products like gasoline and liquified natural gas grew, Daco said. Aircraft orders tend to be volatile, and IHS still expects the trade deficit to be a drag on growth for the full year, he added.
"The big surprise was how strong the rebound in exports was,'' said Daco, who expected the trade deficit to hover between $41 billion and $42 billion. ``Part of it was aircraft but you also had good numbers from telecom equipment, computers and semiconductors. Even without the volatile parts you had good numbers.''
The government's estimates of gross domestic product, the benchmark for the size and growth of the economy, include a subtraction for the estimated trade deficit during any given quarter. Because the Bureau of Economic Analysis releases its first estimate of GDP growth about 30 days after the end of each quarter, new data on trade, construction and factory orders have been released since the first estimate of second-quarter GDP on July 31.
The gains from more exports may cause the government to trim estimates of how much businesses built up inventories during the quarter, Daco said, pulling the economy's potential growth rate closer to 2.5% than 2.7%. The second estimate of GDP for the second quarter will be released Aug. 29.