U.S. trade deficit widens in June, trade likely to subtract from GDP growth in quarters ahead

Trade deficit in the U.S. widened in June. The deficit broadened by USD 3.2 billion to USD 46.3 billion, widely consistent with consensus expectations. June merchandise trade deficit data was available heading into this morning’s report, from the advance goods trade balance report released last week, noted Barclays in a research report.

The surplus in services trade remained widely stable, consistent with expectations. The widening in the trade deficit in June, after three straight months of narrowing, implies that some of the transitory factors that drove those trends are beginning to wane.

“We expect the trade deficit to continue to widen, as a fiscal-stimulus led boost to demand leads to higher imports. As a result, trade is likely to subtract from GDP growth in the coming quarters, reversing the significant positive contribution recorded in Q2”, stated Barclays.

Delving into details, exports for foods, feeds & beverages dropped 0.3 percent sequentially in June, after recording solid growth in the prior three months. Most of the sharp rise in exports of this category in the earlier months was due to exports, and this possibly reflected a desire to front-run tariffs.

In the meantime, imports growth was unusually weak in the second quarter and was led by a moderation in consumer goods and auto imports. Part of this might have been due to normalization in the post-hurricane demand for autos. However, both consumer goods and auto imports recovered strongly in June, which indicates towards a slight rebound in demand.

At 17:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was neutral at 29.6278. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex