US goods trade deficit widens in July; retail inventories fall

[WASHINGTON] The US goods trade deficit increased in July as exports fell, suggesting that trade would make a modest contribution to economic growth in the third quarter.

The Commerce Department said on Monday the goods trade gap increased 1.7 per cent to US$65.1 billion last month. Exports declined 1.3 per cent, weighed down by an 8.0 per cent tumble in shipments of motor vehicles.

There were also decreases in exports of consumer goods last month. Capital goods exports rose 1.5 per cent.

"Early on in the third-quarter data cycle, we think trade will be a slightly positive factor for growth during the quarter," said Daniel Silver, an economist at JPMorgan in New York. "With the July data now in hand for capital goods shipments and related trade flows, we think real equipment spending will be strong in the third quarter."

Imports fell 0.3 per cent, reflecting a 2.8 per cent drop in motor vehicle imports as well as a 1.7 per cent decline in industrial supplies. Capital goods imports rose 2.0 per cent last months and imports of consumer goods dipped 0.1 per cent.

"The readings on consumer and capital goods imports are consistent with our view of ongoing expansion in US economic activity, led by household and business spending," said Michael Gapen, chief economist at Barclays Capital in New York.

The government will publish its comprehensive trade report, which includes services, next week. Trade added nearly two-tenths of a percentage point to the economy's 2.6 per cent annualised growth rate in the second quarter.

The Commerce Department also reported on Monday that wholesale inventories increased 0.4 per cent in July after rising 0.6 per cent in June. However, retail inventories fell 0.2 per cent after advancing 0.6 per cent in June.

Retail inventories, excluding motor vehicles and parts, the component that goes into the calculation of gross domestic product also fell 0.2 per cent last month after rising 0.5 per cent in June.

Despite July's soft inventory data, economists remained optimistic that inventory investment would contribute to growth in the third quarter. Inventory investment had a neutral impact on second-quarter GDP after slicing 1.46 percentage points from output in the first three months of the year.

REUTERS