US trade deficit and business spending data could save second quarter GDP

WASHINGTON (Reuters) – The U.S. goods trade deficit narrowed sharply in June on rising exports, but business investment remained robust, reducing the risk of another economic contraction in the second quarter.

A better-than-expected report from the Commerce Department on Wednesday prompted economists to scramble to improve estimates of GDP for the latest quarter, which ranged from negative to barely growing. The data comes ahead of Thursday’s release of second-quarter GDP flash estimates.

A series of weak housing data and weak consumer and business confidence surveys have fueled expectations of a second consecutive quarter of negative quarterly GDP, fueling fears of a recession.

JP Morgan now expects the economy to grow at an annualized rate of 1.4%, rather than the 0.7% pace previously expected.

“This morning’s data bolsters our confidence that tomorrow’s announcement will not hurt second-quarter GDP,” said Veronica Clarke, an economist at Citigroup in New York.

The trade deficit fell 5.6% to $98.2 billion, the lowest level since November last year. Merchandise exports increased by $4.4 billion to $181.5 billion. Exports of food and industrial products surged. However, exports of capital and consumer goods, as well as automobiles and spare parts, declined.

Imports of goods fell by $1.5 billion to $279.7 billion. It decreased due to the import of automobiles and food. However, imports of consumer goods and capital goods increased significantly.

Trade has deducted from GDP for the seventh straight quarter, and the expected contribution of the small gap to GDP should offset the expected slowdown in inventories.

The pace has slowed from that seen in the fourth quarter of 2021 and the first three months of the year as companies continue to restock inventories. With consumer spending slowing, businesses are also concerned about excess inventories.

Walmart (WMT.N) said Monday it needed more price cuts to reduce inventory. In May, retail benchmarks said they had more than $60 billion in inventories at the end of the first quarter.Read more

The Department of Commerce also reported Wednesday that wholesale inventories rose 1.9% in June and retail inventories rose 2.0%. Retail inventories were supported by a 3.1% increase in auto inventories.

Excluding cars, retailer inventories increased by 1.6%. This component goes into the GDP calculation.

Economist Daniel Silver said: “We expect the narrowing of the trade deficit in the second quarter to support overall GDP growth more than previously expected, and we also expect a slower slowdown in inventories than previously forecast. I am.” At JP Morgan in New York.

GDP likely grew at an annualized rate of 0.5% in the second quarter, according to a Reuters poll of economists. The survey was conducted ahead of Wednesday’s data. The economy contracted at a pace of he 1.6% in the first quarter.

Investors fear that quarterly GDP will turn negative again, leading to a technological recession.

But GDP is just one of many indicators tracked by the National Bureau of Economic Research, the official judge of recessions in the United States. So just because GDP has contracted for two consecutive quarters doesn’t mean the economy is in recession.

Wall Street stocks rose. The dollar remained stable against a basket of currencies. US Treasury prices rose.

recovery activities

Economic activity is slowing as the Federal Reserve aggressively tightens monetary policy to keep inflation in check. The US central bank is expected to raise key rates by another 75 basis points late Wednesday, bringing the total rate since March to 225 basis points.

Businesses are continuing to invest in equipment despite rising interest rates and growing fears of a recession. In a separate report on Wednesday, the Department of Commerce said orders for nonmilitary capital goods, excluding aircraft, increased by 0.5% last month.

Orders for these so-called basic capital goods rose 0.5% in May. Economists polled by Reuters had expected orders for basic capital goods to rise by 0.2%. Orders in June increased 10.1% year-on-year.

PCs, electronic equipment, electrical equipment, home appliances,

and components, but machine orders fell.

Shipments of basic capital goods rose 0.7% after rising 1.0% in May. Shipments of basic capital goods are used to calculate capital expenditures for GDP measures.

Ryan Sweet, senior economist at Moody’s, said: “While some of the gains are due to higher prices, the lack of a sustained decline in orders reflects concerns about tightening financial markets, declining confidence and a recession. Nonetheless, it suggests that companies are continuing to invest.” Analysis of West Chester, Pennsylvania.

Durable goods orders rose 1.9% in June, from toasters to 3+ year old airplanes, after rising 0.8% in May. He attributed this to a 5.1% increase in orders for transportation equipment. Auto orders he increased 1.5 times. Orders for defense aircraft jumped he 80.6%.

Unfilled durable goods orders rose 0.7% and production should continue for some time. Inventories rose 0.4%.

“Capital projects will be more expensive when funding conditions tighten, but rising interest rates will not completely derail the prospects for business investment,” said Lydia Busseur, chief U.S. economist at the University of Oxford. ‘ said.

Information from Lucia Muticani; edited by Paul Simao, Andrea Ricci and Chizuru Nomiyama

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