The news on Tuesday that the US trade gap in May widened to its largest point in more than two years won’t alleviate concerns about an expected disappointment in Q2 GDP, but the news isn’t quite as bad as the headline number would suggest.
Here’s a graph from Calculated Risk:
As CR writes, most of the deficit is mostly down to movements in petroleum imports and in the bilateral trade deficit with China (just under $25bn in May) — and in May, roughly two-thirds of the increase in the overall deficit came from rising oil prices. But there’s a good chance that petroleum imports will contribute less to the deficit in June given how much oil prices have declined since the start of May.
CR additionally notes that imports are approaching a pre-recession peak, while both imports and exports more than 15 per cent higher than where they were a year ago. High Frequency Economics finds reason for optimism in its interpretation of what some of the growth in capital goods imports says about wider US economic activity…
Trade looks likely to ‘add’ less to second-quarter GDP growth than previously thought, although we believe we are still on track for an ‘addition’ of between 1¼ and 1½ percentage points. The best news in the report from a future growth perspective is the 36.1% annualized growth in capital goods imports in real terms, which corroborates the stronger capital goods orders data in the durable goods report. If the economy was headed to a true double-dip, we doubt companies would be boosting their investment spending in this way. On a Japan note, it appears that supply-chain disruptions remained significant as imports in May from Japan are down 3.8% from May 2010 (the same comparison for April was a drop of 6.5%, whereas the pre-earthquake trend was a year-over-year increase of around 20%).
… while Citi are a bit less sanguine about what this means for Q2 GDP:
The nominal trade deficit unexpectedly widened 15.1% in May to $50.2 billion from an April balance of $43.6 billion. The level of crude oil imports rose nearly $4 billion in May – accounting for the vast majority of the $5.6 billion (+2.6%) rise in imports. Total exports actually fell 0.5% on a 4.2% drop in industrial supplies.
The real goods trade balance widened to $47.8 billon from $43.9 billion in April and $50.4 billion on average in 1Q 2011. Prior to today’s report we had expected net exports to add about three-quarters of a percentage point to second quarter GDP; however, with the real merchandise trade balance rising by almost $4 billion, this jump probably erases most of the projected net export contribution.
Related link:
More on US trade figures and global imbalances – FT Alphaville