US trade gap hits 3½-yr low

US Commerce Department said the trade gap fell 22.4% to $34.2 bn, the smallest since Oct 2009

The US trade deficit narrowed sharply in June to its lowest level in more than 3½ years as imports fell and exports touched a record high, suggesting an upward revision to second-quarter growth.

The US Commerce Department said on Tuesday the trade gap fell 22.4 per cent to $34.2 billion, the smallest since October 2009. The percentage decline was the largest since February 2009.

May's shortfall on the trade balance was revised to $44.1 billion from the previously reported $45.0 billion.

Economists polled by Reuters had expected the trade deficit to narrow only to $43.5 billion in June. When adjusted for inflation, the trade gap narrowed to $43.2 billion, the smallest since January 2010, from $51.9 billion in May.

The smaller so-called real trade deficit in June suggests the government could raise its initial second-quarter gross domestic product growth estimate, published last week.

"All else being equal, this could mean a net upward revision worth about 0.8 percentage points and take second-quarter growth to 2.5 per cent," said Tim Quinlan, an economist at Wells Fargo Securities in Charlotte, North Carolina.

Trade subtracted 0.8 percentage point from second-quarter GDP growth, according to the first government estimate. The economy expanded at an annual rate of 1.7 per cent, stepping up from the first-quarter's 1.1 per cent pace.

Belt-tightening in Washington and weaker global demand weighed on the US economy in the first half of the year, but analysts expect activity to regain momentum for the rest of 2013 as the fiscal policy burden eases and growth in Europe picks up.

The dollar trimmed losses against the euro and the yen on the report.

The three-month moving average of the trade deficit, which irons out month-to-month volatility, fell to $39.5 billion in the three months to June from $40.5 billion in the prior period.

In June, imports of goods and services fell 2.5 per cent to $225.4 billion. That reflected hefty declines in petroleum imports and industrial supplies and materials, which tumbled to levels last seen in November 2010.

Exports of goods and services increased 2.2 per cent to a record $191.2 billion. The gain in exports was broad based, with food, industrial supplies, capital goods and consumer goods rising. Motor vehicle exports, however, fell in June.

Strong export growth helped to lift the economy out of the 2007-09 recession and signs of a pick-up after faltering in recent months should buoy expectations of an acceleration in GDP growth in the last six months of this year.

US exports to the 27-nation European Union rose 1.5 per cent in June. Exports to the EU in the first half of the year were down 5.5 per cent compared to the same period in 2012.

Exports to China, which have been growing more slowly than in recent years, increased 4.5 per cent in June.

China has been one of the fastest growing markets for US goods, and exports to that country were up 4.2 per cent for the first six months of 2013.

Imports from China fell 2.2 per cent, lowering the contentious US trade deficit with China to $26.6 billion from $27.9 billion in May.