The United States’ merchandise trade deficit widens on imports; stocks are increasing

WASHINGTON, July 28 (Reuters) – The US goods trade deficit widened in June as imports continued to rise amid strong economic activity, suggesting that trade likely remained a drag on growth in the second quarter.

The US economy has rebounded faster after the pandemic compared to its global rivals, thanks to massive fiscal stimulus, low interest rates and COVID-19 vaccinations. But bottlenecks in the supply chain have hampered manufacturers’ ability to scale up production, attracting more imports.

“The widening of the advanced nominal goods deficit in June is further evidence that net exports will weigh on second quarter GDP,” said Ryan Sweet, senior economist at Moody’s Analytics in West Chester, Pa.

The merchandise trade deficit rose 3.5 percent to $ 91.2 billion last month, the Commerce Department said on Wednesday. Imports of goods rose 1.5% to $ 236.7 billion. Imports of food, industrial supplies and capital goods increased.

But imports of motor vehicles and consumer goods fell. While this could point to a possible moderation in consumer spending in the coming months, the drop could reflect a global semiconductor shortage, which has weighed on production of motor vehicles and some home appliances.

Spending during the pandemic shifted towards goods and services, with Americans locked in their homes. With nearly half of the population of the United States fully vaccinated against the coronavirus, the demand for services is increasing.

This has sparked optimism among some economists that fewer goods will be imported in the coming months and allow the trade gap to narrow. But the Delta variant of the virus is causing a resurgence of new infections across the country, which could limit demand for services.

“We expect the overall trade deficit to narrow over the next few months as consumers shift spending towards services and greater dissemination of vaccines overseas encourages stronger export growth,” said Mahir Rasheed, American economist at Oxford Economics in New York. “However, the risks of persistent supply chain disruptions and the rapid spread of the Delta variant could slow trade flows.”

Stocks on Wall Street were mixed. The dollar appreciated against a basket of currencies. US Treasury prices were lower.

INCREASE IN EXPORTS

Exports of goods rose 0.3% to $ 145.5 billion, amid sharply lower food shipments. Exports of capital goods also fell. But the nation exported more motor vehicles and consumer goods.

The report was released ahead of Thursday’s second quarter gross domestic product data. Trade has been a drag on GDP growth for three consecutive quarters.

According to a Reuters survey of economists, the economy likely grew at a robust annualized rate of 8.5% in the last quarter, an acceleration from the 6.4% pace in the first quarter. The expected second quarter growth rate is believed to be the fastest since 1983 and could peak in the current cycle.

Some of last month’s imports were used to replenish stocks at wholesalers and retailers, which could ease the drag on trade-related GDP growth.

The Commerce Department said wholesalers’ inventories rose 0.8% last month after rising 1.3% in May. Retailers’ inventories gained 0.3% after falling 0.8% in May. Inventories of motor vehicles fell 0.3% after declining 5.5% in May. Auto production has been curtailed by the global chip shortage.

Inventories of non-auto retailers, which are included in the calculation of GDP, climbed 0.6% after advancing 0.9% in May.

Business inventories were reduced in the first quarter.

“Overall, it looks like real inventories fell sharply in the second quarter on a net basis, but the weakness was most severe early in the quarter,” said Daniel Silver, economist at JPMorgan in New York City.

Reporting by Lucia Mutikani; Editing by Dan Burns and Andrea Ricci

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