Exports Rise But Trade Deficit Widens – US-FOREX.US
U.S. exports are on the rebound, but rising oil prices widened the trade deficit in June.”The global business cycle is in a state of repair and that involves trade building itself back up, even if it means a modest widening of the deficit,” said Steven Wieting, chief U.S. economist at Citigroup. The trade deficit widened in June to negative 27 billion, from negative 26 billion in May, due to rising oil prices lifting imports for the first time in nearly a year, according to the Commerce Department. Meanwhile, despite the increase in the nominal deficit, real balance of goods tightened to negative 35.6 billion, from 36.3 billion, maintaining a trend that began in 2006.Exports increased 2.0% June, after a 1.6% increase in May. The jump kept the deficit from stretching to negative 28.5 billion, which Wall Street had expected, and was led by foreign demand for industrial supplies and materials, and capital goods. This is good news for the economy, which has seen that metric drag over the past year. “The rise in exports – the second straight monthly increase – can be viewed as a positive comment on the beginning recovery in world trade,” said Vincent Farrell chief investment officer of Soleil Securities in a note to clients Wednesday.Export growth was outmatched by the 2.3% rise in imports, as petro imports increased by nearly a quarter during June, yet about three-fourths of the jump was due to higher prices. The cost of energy dropped in July though, which will probably lead to a decline in imports during the month. Since January, the Energy Select Sector SPDR
exchange-traded fund rose 6.6%.Growth in activity in both directions is indicative of a rebound in global trade, though Wieting noted that the trade sector had recently ground to a halt. Global trade is strikingly short of what it was even a year ago. For example, the trade gap for the first half 2009 totaled nearly 173 billion, which is more than 50% lower than last year’s corresponding period. At the current pace, the U.S. trade deficit for the entirety of 2009 will be the lowest since 265 billion in 1999.
Abiel Reinhart, an economist at JPMorgan Chase, expects exports to continue to grow in the months ahead as global economic activity turns positive, adding that non-petroleum imports should also rebound soon because of rising domestic demand. It’s difficult to see domestic demand go anywhere but up, as imports of consumer products fell to the lowest since November 2005.