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U.S. trade deficit widens, little impact seen on third-quarter growth

China Shipping containers lie on the dock after being imported to the U.S. in Los Angeles, California, October 7, 2010. REUTERS/Lucy Nichols
China Shipping containers lie on the dock after being imported to the U.S. in Los Angeles, California, October 7, 2010. REUTERS/Lucy Nichols

By Lucia Mutikani

WASHINGTON (Reuters) - The U.S. trade deficit widened a bit more than expected in July as exports dipped, but a bounce back in imports hinted at some strengthening in domestic demand early in the third quarter.

The Commerce Department said on Wednesday the trade gap increased 13.3 percent to $39.1 billion, partially unwinding a plunge in June that had pushed the deficit to a 3-1/2 year low.

Adjusted for inflation, the shortfall grew to $47.7 billion from $43.8 billion in June. It is this so-called real deficit that goes into the calculation of gross domestic product.

A widening trade gap usually subtracts from GDP, but in July both measures remained around their average for the second quarter. Some economists said this suggested trade would likely have little effect on third-quarter economic growth.

"That's not surprising given the fact that it looks like Europe is coming out of a recession, but at the same time, consumers are spending a little bit more in the U.S. and that includes spending on imports," said Gus Faucher, senior economist at PNC Financial Services Group.

Analysts said, however, that trade should begin adding to U.S. GDP later in the year given signs global demand is picking up.

Euro zone businesses had their best month in over two years in August as orders increased for the first time since mid-2011, while growth in China's services sector hit a five-month high, data showed on Wednesday. That came on the heels of reports on Monday showing robust growth at European factories in August and a rebound in Chinese manufacturing activity.

A 1.6 percent rise in U.S. imports in July offered a sign of a pick-up in domestic demand. Imports of industrial supplies, automobiles, consumer goods and food all increased, with auto imports reaching an all time high. Imports of capital goods, however, fell.

"The improvement in non-petroleum imports offers an encouraging glimpse on the tone of domestic demand and U.S. economic activity more generally," said Millan Mulraine, senior economist at TD Securities in New York.

RECORD PETROLEUM EXPORTS

Exports slipped 0.6 percent in July even as exports of petroleum products hit a record high and the country sold more food and industrial supplies.

Against a backdrop of improving global demand, the cooling in exports was expected to be temporary, and some economists noted that a report from the Institute for Supply Management on Tuesday showed new export orders rose in August.

"While declining dependence on energy is helping and should continue to do so, we need a European rebound if our exports are to really improve," said Joel Naroff, chief economist at Naroff Economic Advisers in Holland, Pennsylvania.

In July, exports to the 27-nation European Union fell 7.4 percent, resulting in a record bilateral trade deficit. Exports to the EU in the first seven months of the year were down 4.4 percent compared to the same period in 2012.

Exports to China fell 4.9 percent. China has been one of the fastest-growing markets for U.S. goods, but growth slowed earlier in the year. Exports to that country were up just 4.0 percent for the first seven months of 2013.

Imports from China jumped 8.3 percent in July, lifting the contentious U.S. trade deficit with China to a record $30.1 billion.

(Reporting by Lucia Mutikani; Additional reporting by Jonathan Cable in London; Editing by Andrea Ricci)

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