US exports, trade spending could save second-quarter GDP.

  • The goods trade deficit narrowed 5.6 percent to $98.2 billion in June.
  • Wholesale goods increase 1.9%; Retail stock 2.0%
  • Orders for capital goods increase 0.5%; Load increases by 0.7%

WASHINGTON, July 27, 2010 (GLOBE NEWSWIRE) — The U.S. goods trade deficit narrowed sharply in June as exports rose, while business spending on equipment remained strong, reducing the risk of the economy slowing again in the second quarter.

A better-than-expected report from the Commerce Department on Wednesday has economists scrambling to revise their estimates of gross domestic product from negative to barely growing in the previous quarter. The data was published ahead of Thursday’s release of preliminary second-quarter GDP estimates.

More soft housing data as well as weak business and consumer sentiment surveys raised expectations for a second straight quarter of negative GDP readings, fueling fears of a recession.

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JPMorgan now expects the economy to grow at an annual rate of 1.4%, rather than the 0.7% rate previously estimated.

“This morning’s data gives us more confidence that the second quarter GDP release tomorrow will not slow,” said Veronica Clark, an economist at Citigroup in New York.

The merchandise trade deficit decreased by 5.6% to 98.2 billion dollars, which is the smallest since last November. Exports increased by $4.4 billion to $181.5 billion. There were strong gains in exports of food and industrial products. But few capital and consumer goods as well as motor vehicles and parts were exported.

Imports fell $1.5 billion to $279.7 billion. They fell on imported motor vehicles and foodstuffs. Imports of consumer and capital goods, however, increased significantly.

Trade has fallen short of GDP for seven consecutive quarters, and the expected contribution to GDP from the smaller gap could dampen the expected drag from manufacturing.

As businesses continued to rebuild inventory, it slowed from the pace seen in the fourth quarter of 2021 and the first three months of this year. With consumer spending slowing, businesses are also wary of stockpiling too much stock.

Walmart ( WMT.N ) on Monday said further price cuts were needed to ease inventories. Read more

The Commerce Department reported Wednesday that wholesale inventories rose 1.9% in June, while stocks at retailers rose 2.0%. Retail inventories were boosted by a 3.1% jump in motor vehicle inventories.

Excluding motor vehicles, retail goods rose 1.6 percent. This part is included in the calculation of the gross domestic product.

“We now expect the narrowing of the trade deficit in the second quarter to be more supportive of headline GDP growth than we previously expected, and we expect it to pull less from goods than our previous forecast,” said economist Daniel Silver. JPMorgan in New York.

According to a Reuters poll of economists, gross domestic product is likely to increase at a 0.5% annual rate in the second quarter. The survey was conducted before Wednesday’s data. The economy expanded at a 1.6 percent pace in the first quarter.

Investors were nervous about another quarterly GDP reading, which could mean a technical decline. As President Joe Biden’s Democratic Party seeks to reassure voters ahead of the Nov. 8 midterm elections that will determine control of the U.S. Congress, the White House is pushing hard against the recession controversy.

But gross domestic product is only one of several indicators tracked by the National Bureau of Economic Research, the official arbiter of economic research in the United States. So, the second straight quarter of contraction in GDP doesn’t mean the economy is in recession.

Stocks on Wall Street were higher. The dollar dipped against a basket of currencies. US Treasuries rose in value.

Cooling activity

Economic activity is slowing as the Federal Reserve tightens monetary policy to curb inflation. The US central bank raised its policy rate by another three-quarters of a percentage point on Wednesday, bringing the total rate since March to 225 basis points. Read more

Despite rising interest rates and fears of a recession, businesses are still investing in equipment. In another report on Wednesday, the Commerce Department said orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, rose 0.5 percent last month, matching May’s increase.

Economists polled by Reuters had forecast that major capital goods orders would gain 0.2%. Orders rose 10.1% year over year in June.

For computers and electronic products as well as electrical equipment, appliances,

and bodies. But the order of the machine was baptized.

Core capital goods rose 0.7% after rising 1.0% in May. Transportation of capital goods is used to calculate equipment costs in the gross domestic product measure.

Ryan Sweet, senior economist at Moody’s, said: “Some of the increase is due to higher prices, but the absence of a sustained decline in orders suggests that businesses are still investing despite very tight financial market conditions.” Analysis in West Chester, Pennsylvania.

Durable goods, items ranging from toasters to airplanes that are expected to last three years or more, rose 1.9 percent in June after rising 0.8 percent in May. Orders for transportation equipment jumped 5.1%. Motor vehicle orders increased by 1.5%. Defense aircraft orders rose 80.6 percent.

Unfilled durable goods orders rose 0.7%, which should keep production up for some time. Inventories rose 0.4 percent.

“Financial conditions are making tighter capital expenditure projects more expensive, but higher interest rates are not completely dampening business investment prospects,” said Lydia Bussor, chief US economist at Oxford Economics in New York.

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Reporting by Lucia Mutikani; Editing by Paul Simao, Andrea Ricci and Chizu Nomiyama

Our standards: The Thomson Reuters Trust Principles.

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