Trade gap in U.S. widened in July from almost four-year low

The U.S. trade deficit increased 13.3 percent in June, as Americans imported a record number of automobiles and more fuel. / BLOOMBERG FILE PHOTO/DAVID RAMOS
The U.S. trade deficit increased 13.3 percent in June, as Americans imported a record number of automobiles and more fuel. / BLOOMBERG FILE PHOTO/DAVID RAMOS

WASHINGTON – The trade deficit in the United States widened in July from an almost four-year low as imports rebounded and exports cooled.

The gap increased 13.3 percent to $39.1 billion from $34.5 billion in June, a shortfall that was the smallest since October 2009, the Commerce Department reported Wednesday in Washington. The median forecast in a Bloomberg survey of 72 economists called for a $38.6 billion deficit. Americans bought record auto imports and more fuel.

A pickup in domestic consumer and business demand will probably prompt U.S. companies to sustain purchases from trading partners in the third quarter. At the same time, slower global growth may weigh on exports as markets from China to Europe struggle to gain momentum.

“Looking ahead, imports are probably going to grow at a faster rate than exports,” said Joshua Dennerlein, an economist at Bank of America Corp. in New York, who correctly forecast the trade balance. “Part of that reflects a pick-up in domestic demand.”

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Stock-index futures extended earlier losses after the report. The contract on the Standard & Poor’s 500 Index maturing this month fell 0.1 percent to 1,637.4 at 9:03 a.m. in New York.

Survey results

Bloomberg survey estimates ranged from trade deficits of $34.8 billion to $42.5 billion. The 13.3 percent jump in the gap was the biggest since January 2011 and followed a 21 percent contraction in June, suggesting the trend is somewhere between the two. The July and June readings were the smallest back to back since late 2009.

The Commerce Department initially reported a $34.2 billion shortfall for June.

Imports climbed 1.6 percent to $228.6 billion in July. The U.S. imported $32.5 billion worth of petroleum-related products, the most since October. Purchases of autos, parts and engines climbed to $26.5 billion, the most ever.

Exports decreased 0.6 percent to $189.4 billion after jumping 2.2 percent in June to a record $190.5 billion. The July reading was the second-highest ever. The cooling reflected fewer purchases of capital goods, including airplanes and engines, and of consumer items such as jewelry.

The trade shortfall excluding petroleum grew to $20.4 billion in July from $17.1 billion.

Growth impact

After eliminating the influence of prices, the trade deficit widened to $47.7 billion from $43.8 billion in June. The reading for July matched the second-quarter average, indicating trade is so far having little influence on third-quarter gross domestic product.

The economy expanded more than estimated in the second quarter, with GDP increasing at a 2.5 percent annualized rate, up from an initial estimate of 1.7 percent, the Commerce Department said Aug. 29. The trade deficit in the second quarter was smaller than previously estimated, reflecting the biggest gain in exports in more than two years.

Economists expect slower growth of 2.3 percent in the third quarter, according to data compiled by Bloomberg, as some reports suggest a weaker start.

Consumer spending rose 0.1 percent after a 0.6 percent June gain as income growth slowed to just enough to keep ahead of inflation.

Manufacturing rebound

Other data last week showed orders for durable goods dropped in July by the most in almost a year. At the same time, factories received more orders in August, unexpectedly sending the Institute for Supply Management’s manufacturing index for August to a two-year high. The group’s export index improved to a five-month high, while the import gauge climbed to the highest point since April 2010.

“Broadly, the U.S. is probably doing a little better by and large than our trading partners,” Stephen Stanley, chief economist at Pierpont Securities LLC, said before the report.

The trade gap with China, the world’s second-biggest economy, widened to a record $30.1 billion from $26.6 billion, today’s report showed. The deficit with the European Union was also the biggest ever with the region, reaching $13.9 billion.

Global GDP is projected to pick up speed in the second half of the year, with growth reaching 2.6 percent on a year-to-year basis in the fourth quarter from 2.1 percent in the second quarter, according to the median forecast of economists surveyed by Bloomberg. That may help companies, including machinery manufacturer Deere & Co., which reported the slowest quarterly sales growth since 2010 in the third quarter ended July.

The Moline, Ill.-based company expects its global forestry markets to be up as much as 10 percent this year, “as weakness in Europe and Russia is more than offset by improvement in North America,” Susan Karlix, manager of investor communications, said on an Aug. 14 conference call. While the company faces headwinds, including a sluggish global economy and political gridlock in Washington, D.C., the longer-term picture “remains extremely bright,” she said.

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