U.S. trade deficit widens in May, indicates weakness in certain areas of economy

The U.S. trade deficit broadened more than economists’ projection in May. This might suggest likely indications of weakness in certain areas of the economy, according to certain economists. The trade shortfall in goods reached USD 60.6 billion in May from USD 57.5 billion in April. Expectations were for deficit of USD 59 billion. U.S. exports, in nominal terms, dropped 0.5 percent on sequential basis in May, as compared with the growth of 2.4 percent recorded in April. Meanwhile, imports rose 1.4 percent month-on-month, as compared with a growth of 2.5 percent in the prior month.

Petroleum prices seemed to have predominantly driven most of the import growth. Nominal imports, stripping industrial supplies that keep track on nonpetroleum imports in time rose 0.5 percent on sequential basis and continue to be depressed following unstable readings in the past few months. Industrial supplies grew 5.3 percent, contributing nearly three-quarters to the monthly import growth.

Nonautomotive consumer goods imports were up 1.7 percent month-on-month, as compared with 1.1 percent recorded in April. Auto imports grew 0.8 percent month-on-month, whereas capital goods imports declined 2.2 percent on sequential basis. The underlying weakness might indicate a subdued overall core import growth in the second quarter.

Meanwhile, the automotive exports dropped 5.1 percent, while capital goods declined 1.7 percent. Both these components were mainly responsible for the overall exports to decline 0.5 percent month-on-month in May. Exports of food and beverage increased sharply 4.7 percent on sequential basis, as compared with 4.5 percent rise in April. Exports of nonautomotive consumer goods also moved higher, increased 1.2 percent.

Real goods exports, adjusting for changes in prices, are expected to have dropped 1.6 percent month-on-month, said Barclays in a research report. Meanwhile, the real goods imports are estimated to have been flat month-on-month last month, whereas the real goods deficit broadened around USD 1.8 billion month-on-month to USD 59.4 billion.

“Overall, and after adjusting for price changes, we now see softer Q2 import growth than previously expected. This, in turn, boosted our Q2 GDP tracking estimate one-tenth, to 2.5%”, added Barclays.