Thu, Aug 08, 2013 - Page 15 News List

Smaller US trade gap could lift Q2 growth


A sharp decline in the trade deficit with other nations suggests the US economy grew this spring at a faster pace than previously estimated, helped by a record level of exports.

The US Department of Commerce said on Tuesday that the US trade gap fell more than 22 percent in June from May to US$34.2 billion. That is lowest level since October 2009.

US companies shipped more aircraft engines, telecommunications equipment, heavy machinery and farm goods. As a result, exports rose 2.2 percent to an all-time high of US$191.2 billion.

Imports declined 2.2 percent to US$225.4 billion, in part because oil imports fell to the lowest level in more than two years.

Economists said the steep drop in the trade deficit would likely lead the government to revise its economic growth estimate for the April-June quarter.

“We could see a sizeable upward revision,” BMO Capital Markets senior economist Jennifer Lee said.

Last week the government estimated that the economy grew at a lackluster 1.7 percent annual rate in the second quarter, in part because trade cut nearly a full percentage point from growth.

However, after seeing the June trade figures — which were not factored into last month’s growth estimate — several economists said growth could be closer to 2.5 percent. The government reports its second estimate of growth for the April-June quarter on Aug. 29.

A smaller trade deficit lifts economic growth because it means consumers and businesses are spending less on foreign goods than companies are taking in from overseas sales.

Many economists think overall growth has started to rebound in the July-September quarter. Some say growth could near a 3 percent annual rate. A key reason is that several export markets, including Europe, are seeing improvement.

For June, US exports to the 27-nation EU rose 1.5 percent. That helped shrink the deficit with the region to US$7.1 billion.

The deficit with China fell 4.3 percent to US$26.6 billion, while the US’ deficit with Japan rose 2.2 percent to US$5.5 billion in June.

IHS Global Insight senior economist Gregory Daco said trade could still drag the economy in the second half of the year. That’s because he expects imports will increase at a faster pace than exports, reflecting the health of the US consumer and weaker growth overseas.

“We still have relatively modest global growth which will constrain US exports,” Daco said.

Still, the rise in exports underscored the importance that manufacturing plays in the US economy, Naroff Economic Advisors chief economist Joel Naroff said.

“A number of companies are doing whatever they can to bring back as much production as they can to the United States,” Naroff said. “They are facing rising wages in countries such as China and other problems of doing business there.”

US factories are already starting to show more strength after slumping earlier this year, helped by increases in business spending and less drag from government cuts.

Activity at US factories increased last month at the fastest pace in two years, according to the Institute for Supply Management’s closely watched manufacturing index.

US factories also added 6,000 jobs last month, the US Department of Labor said on Friday. That was the first month of manufacturing job growth since February.

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