Trade gap in U.S. narrows to lowest level since October 2009

Inflation-Adjusted

After eliminating the influence of prices, the trade deficit narrowed to $43.1 billion from $51.9 billion.

The economy expanded at a 1.7% annualized rate from April through June after a 1.1% pace in the first quarter, the Commerce Department said July 31.

Today’s report indicates that the 0.8 percentage point drag from trade, which was the most in almost three years, on second- quarter growth will be wiped away.

Consumer spending, which accounts for about 70% of the economy, grew at a 1.8% pace last quarter.

Economic growth is projected to average 2.5% at an annualize pace in the second half of the year, up from 1.4% in the first six months, according to the median forecast in a Bloomberg survey of 68 economists from July 5 to July 10.

Second Half

Recent reports are pointing to improved second-half growth. U.S. service industries expanded in July at the fastest pace in five months, the Institute for Supply Management reported yesterday, with construction companies, retailers and financial firms reporting a pickup in business. That report followed data last week that showed manufacturing advanced at the fastest rate in more than two years.

Automakers are on pace for their best showing in six years as job gains boost confidence and consumers replace older vehicles. Cars and light trucks sold at a 15.6 million annualized rate in July and 15.9 million the prior month, the strongest back-to-back readings since late 2007, according to figures from Ward’s Automotive Group.

A stronger U.S. currency will make American shipments abroad more expensive. The Dollar Index, used by IntercontinentalExchange Inc. to track the greenback against currencies of six U.S. trading partners, has climbed 3.5% since reaching a low on Feb. 1, through yesterday.

The trade gap with China, the world’s second-biggest economy, narrowed to $26.6 billion from $27.9 billion, today’s report showed. The trade deficit with the European Union, Canada and Mexico also shrank.

Overseas Demand

For some companies such as Eaton Corp., which makes electrical equipment for buildings, demand is being restrained by federal budget cuts and weaker overseas markets. Dublin-based Eaton last week lowered its 2013 growth forecast for U.S. nonresidential construction to 2% to 3% from an earlier projection of 4% to 5% at the beginning of the year.

“We think the global economy is trending up slowly,” Sandy Cutler, chairman and chief executive officer at Eaton, said on an Aug. 2 conference call. “The U.S. is plodding. Europe may be at a bottom, but we see little prospect for a lot of vigor in a prospective recovery at this point. We do not see a major catalyst for a change in the second half of this year.”

Growth, Cutler said, is concentrated more “on the consumer side, not the industrial side.”

www.bloomberg.com

Copyright 2014 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

Comments
comments powered by Disqus