The Trade Gap Narrows Dramatically In June - August 6, 2013
The nation's trade imbalance, the difference between exports, which enhance the nation's gross domestic product, and imports, which detract from it, narrowed notably in June. In all, the deficit fell from May's downwardly revised shortfall of $44.1 billion to June's $34.2 billion. Expectations had been that the deficit, which initially had been calculated at $45.0 billion for May, would have narrowed to $43.5 billion.
The lesser trade gap was occasioned by a sharp increase in exports for the latest reporting month, as that metric rose by $4.1 billion. At the same time, imports, which as noted, detract from the nation's GDP, fell by $5.8 billion from May to June of this year.
This notable improvement in the deficit should enhance second-quarter GDP. Just last week, the initial estimate of that metric had shown a bigger improvement for the period, at a growth rate of 1.7%, than had been forecast, with most economists having estimated an increase of just about 1%, with a few pessimistic pundits having looked for growth that was just about half that level. Now, economists are likely to revisit that initial GDP result, with the possibility that they will increase expectations to possibly 2%, or so. The next estimate of second-quarter growth will be out later this month. In all, the trade gap took 0.8% from second-quarter GDP in that initial estimate. Still, growth exceeded the downwardly revised first-quarter rate of 1.1%.
Encouragingly, this was the smallest trade shortfall since October of 2009, when the United States was just exiting the steepest recession since the Great Depression. The paucity of economic activity at that time played a large role in the shrinkage of the trade gap, as our then slumping nation was clearly limiting its appetite for imported goods.
Meanwhile, belt-tightening in Washington and softening global demand weighed on the U.S. economy in the opening half of this year. Now, though, many are suggesting that the second half will be somewhat better, as the fiscal austerity eases and growth targets pick up on the Continent. In fact, just this morning, we have seen some better industrial numbers out of Great Britain.
All in all, this was a much better report than expected and gives reassurance regarding the second half, although even with this clearly strengthening trend, it figures to be rather slow going in the months to come on our side of the Atlantic.
At the time of this article's writing, the author did not have positions in any of the companies mentioned.