WASHINGTON DC, USA — 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 Commerce Department said that the US trade gap fell more than 22 per cent in June from May to US$34.2 billion, yesterday. That’s the lowest level since October 2009.American companies shipped more aircraft engines, telecommunications equipment, heavy machinery and farm goods. As a result, exports rose 2.2 per cent to an all-time high of US$191.2 billion.Imports declined 2.2 per cent 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 will likely lead the government to revise its economic growth estimate for the April-June quarter.“We could see a sizeable upward revision,” said Jennifer Lee, senior economist at BMO Capital Markets.Last week the government said the economy grew at a lacklustre 1.7 per cent annual rate in the second quarter, in part because trade cut nearly a full percentage point from growth.But after seeing the June trade figures — which were not factored into last month’s growth estimate — some economists said growth could be closer to a 2.5 per cent annual rate. The government reports its second estimate of growth for the April-June quarter on August 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 three per cent annual rate. A key reason is that several export markets, including Europe, are seeing improvement.For June, US exports to the 27-nation European Union rose 1.5 per cent. That helped shrink the deficit with the region to US$7.1 billion.The deficit with China fell 4.3 per cent to US$26.6 billion, while America’s deficit with Japan rose 2.2 per cent to US$5.5 billion in June.Gregory Daco, senior economist at IHS Global Insight, said he still thinks trade will drag on 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, Joel Naroff, chief economist at Naroff Economic Advisors, said the rise in exports underscored the importance that manufacturing plays in the US economy.“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 in July at the fastest pace in two years in July, according to the Institute for Supply Management’s closely watched manufacturing index.And US factories added 6,000 jobs in July, the Labour Department said Friday. That was the first month of manufacturing job growth since February.The container ship Baghira (foreground) and the oil tanker Seabulk Arctic (rear) are anchored off shore as they wait to enter Port Everglades in Fort Lauderdale, Florida. (Photo: AP)View the original article here
Smaller US trade gap could lift growth
