Implications: The trade deficit surged much more than the consensus expected in June, mostly on higher imports but also on a small decline in exports. As a result, it is likely that when the government revises GDP for the second quarter it will be downward from the original estimate of a growth rate of 2.4%. Domestic final sales (adjusted for inflation) revived sharply in Q2, growing at about a 4% annual rate. In the previous three quarters of the recovery, it had grown at only a 1% rate. As a result, the US suddenly sucked in lots of goods from the rest of the world, trumping the impact of a lower dollar (versus several years ago). While some analysts may worry about this trend, during recent decades a rising trade gap has been associated with a strong domestic economy, not a weak one. Moreover, the total volume of international trade – imports plus exports – increased 1.1% in June and is up 24% versus a year ago. We expect more increases in global trade in the months ahead, but with exports growing faster than they have the past few months while the rise in imports starts to slow down.
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Posted on Wednesday, August 11, 2010 @ 11:07 AM
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