U.S. Trade Deficit Widens in Second Quarter
The U.S. trade deficit widened in June and that, combined with moderate inventory accumulation numbers, has sparked pessimism about economic growth in the second quarter.
Exports fell by 5.2 percent compared to June of 2015, a drop attributed primarily to lower commodity prices and decreased automotive exports. Imports also fell (by 2.9 percent) from last year’s numbers, driven in part by airborne consumer goods. Seaborne import volumes fell 1.5 percent vs. a year earlier, according to data from Panjiva, and import prices overall fell 4.8 percent according to BLS data. This despite the fact that air cargo imports to Los Angeles increased 11 percent and those to Miami are 7.4 percent higher than this time last year.
In addition, the Census Bureau’s new advanced economic indicators report showed the advance goods deficit rising 3.7 percent to $63.3 billion last month as imports outpaced export growth. That number was at the top end of the range expected by economists ($58.6-$63.3 billion) according to Bloomberg. Wholesale inventories were unchanged, while stocks at retailers increased 0.5 percent.
Following the advance goods trade and inventories data, the Atlanta Federal Reserve lowered its second-quarter gross domestic product estimate to a 1.8 percent annualized rate from a previous 2.3 percent pace.
What does all this mean? For Donald Trump, it’s more evidence that his disdain for U.S. trade policy is justified. For Hillary Clinton, the disappointing numbers augments her challenge of defending the economic policies of the current administration, while trying to convince voters that Trump’s slash and burn approach to trade cannot be trusted.
Economists expect the short-term setback will be temporary, with better numbers coming soon. “The inventory correction looks severe in the second quarter, likely subtracting over a full percentage point from GDP growth,” said Daniel Silver, an economist at JPMorgan in New York. “While this is a big negative for second-quarter GDP, inventory dynamics should be a positive for growth going forward.”
Millan Mulraine, the Deputy Chief Economist at New York’s TD Securities, is less optimistic: “From a GDP accounting perspective…trade is likely to be a drag on economic activity in the second quarter. The handoff to the next quarter will be unfavorable, and when combined with the stronger dollar and weakening global activity we expect the deficit to widen further in the coming months.”