Trade gap plunge raises U.S. growth hopes

chart_trade_gap.top.gif By Chris Isidore, senior writer


NEW YORK (CNNMoney.com) -- The nation's trade gap fell sharply in July, reducing a major headwind for U.S. economic growth and quieting some fears of a double-dip recession.

The trade deficit fell to $42.8 billion from $49.8 billion in June, according to a report from the Commerce Department Thursday. That's well below the forecast of a $47.3 billion gap from economists surveyed by Briefing.com.

Exports hit a record $153.3 billion in July, up 2% from June and 18% from a year earlier. Imports slipped 2% from June to $196.1 billion, although they are still up 21% from July 2009.

A smaller trade gap is good news for the U.S. economy, and it is likely to lead economists to lift their growth estimates for gross domestic product, the broadest measure of the nation's economic health, in the third quarter

A bigger than expected trade gap in June was one of the factors that caused GDP to slow to a 1.6% annual growth rate in the second quarter. The trade gap in that quarter shaved 3.4 percentage points off of growth.

But while strong exports are good news for U.S. businesses, the weak imports number is a worrisome sign, since it may indicate that American consumers are still reluctant to spend.

"We're still not sold on U.S. consumers," said Jay Bryson, global economist for Wells Fargo Securities.

The better trade figures won't be enough to overcome what is expected to be a sharp plunge in residential and commercial real estate investment, and worries about slumping consumer demand, Bryson said.

His firm has not raised its growth outlook and is still looking for another quarter of only 1.6% growth.

But Bryson said he expects exports to continue to grow, even if the pace is likely to sputter in the face of slowdowns in a number of global economies.

"Is 20% sustainable? No. that's going to slow into single digits as we go forward," he said. "But we'll trend higher."

The latest trade report should help to alleviate some worries of a double-dip recession, Bryson said.

This report suggests that the June trade gap reading that so worried economists may have been only a temporary spike, said Paul Dales, U.S. economist for Capital Economics. Growth might not be as weak as feared moving forward, even if the trade gap continues to edge higher from here, he said.

One factor that might have darkened the June trade numbers, according to Dales, was an expiring tax credit in China, which may have influenced some Chinese exporters to move ahead their shipments to June to qualify. Dales forecasts that the seasonally-adjusted China-U.S. trade gap fell by $2.7 billion in July.

"It now looks like the underlying trend wasn't as bad as the June trade numbers suggested," said Dales. "If everything else remained the same, this could point to 5% growth in the third quarter. That won't happen, but we're looking at at least 2 to 2.5% growth now."

Barclays Capital also said the trade gap pointed to 2.5% growth in the third quarter. They also see the trade report as a positive sign for growth going forward.

"We will see less of a drag from trade in the third quarter on GDP growth than we expected," said a note from the firm Thursday. To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 17,086.63 -26.91 -0.16%
Nasdaq 4,473.70 0.00 0.00%
S&P 500 1,987.01 3.48 0.18%
Treasuries 2.46 -0.00 -0.08%
Data as of 4:37am ET
Company Price Change % Change
Apple Inc 97.19 2.47 2.61%
Facebook Inc 71.29 2.02 2.92%
Microsoft Corp 44.87 0.04 0.09%
EMC Corp 28.75 0.23 0.81%
Bank of America Corp... 15.52 0.00 0.00%
Data as of Jul 23

Sections

McDonald's is standing by a troubled meat supplier, even after allegations the company was selling tainted and expired meat. More

With cost-cutting at the U.S. Postal Service more letter carriers are working later and later to deliver your mail. About 38% of mail is delivered after 5 p.m. in cities nationwide. And areas like Atlanta, Washington and South Florida, it's 70%. More

Like many of its Silicon Valley peers, Twitter workers are mostly male and white according to a diversity report released by the company Wednesday. More

As 65,000 IDF reservists are tapped to serve in Gaza, Israeli's tech community tries to maintain business as usual, amidst bombs, sirens and employees called to war. More

Chinese buyers are now the biggest international players in the U.S. housing market and some states are seeing billions of dollars in real estate deals as a result. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.