U.S. goods trade deficit narrows sharply in June; inventories increase

Business

The U.S. trade deficit in goods narrowed sharply in June amid a surge in exports, which could potentially calm fears that the economy contracted again in the second quarter.

The goods trade deficit shrank 5.6% to $98.2 billion, the Commerce Department said on Wednesday. Goods exports increased $4.4 billion to $181.5 billion. Imports of goods fell $1.5 billion to $279.7 billion. The anticipated contribution to gross domestic product from the smaller trade gap is likely to offset an expected drag from inventories.

A slowdown in consumer spending last quarter is believed to have discouraged businesses from maintaining the same pace of strong inventory accumulation as in the first quarter.

The government’s advance GDP report for the second quarter on Thursday is expected to show the economy rebounding at a scant 0.5% annualized rate. The economy contracted at a 1.6% pace in the first quarter. A barely growing economy would heighten fears that a recession was around the corner, especially with the interest rate sensitive housing and manufacturing sectors showing a significant cooling in recent months.

The labor market is also losing steam, though it remains fairly tight. First-time filings for unemployment benefits are at an eight-month high. Economic activity is slowing as the Federal Reserve aggressively tightens monetary policy to tame inflation. The U.S. central bank is expected to raise its policy rate by another 75 basis points on Wednesday, which would bring the total interest rate hikes since March to 225 basis points.

Trade has subtracted from GDP for seven straight quarters.

The Commerce Department also reported on Wednesday that wholesale inventories increased 1.9% in June, while stocks at retailers rose 2.0%.

Walmart (WMT.N) on Monday slashed its profit forecast and said it needed more price cuts to pare inventories. Back in May, the retail bellwether said it was sitting on over $60 billion of inventory at the end of the first quarter.