The U.S. trade deficit in goods narrowed sharply in June amid a surge in exports that could do little to potentially ease concerns that the economy contracted again in the second quarter.
The merchandise trade deficit shrank 5.6% to $98.2 billion, the Commerce Department said on Wednesday. Merchandise exports increased by $4.4 billion to $181.5 billion. Imports of goods fell $1.5 billion to $279.7 billion. The latest indications present expectations that it could spur a jump in gross domestic product.
Weakness in consumer spending last quarter is believed to be a factor in businesses choosing not to maintain the same inventory levels as in the first quarter.
The government's preliminary GDP report for the second quarter on Thursday is expected to show the economy rebounding at a modest annual rate of 0.5% based on a Reuters poll of economists. The economy contracted at a rate of 1.6% in the first quarter. A barely growing economy will heighten fears that a recession is imminent, especially with the interest rate-sensitive housing and manufacturing sectors having shown significant declines in recent months.
The labor market is also easing, although it is still relatively tight. First-time filings for unemployment benefits are at an eight-month high. Economic activity is slowing as the Federal Reserve aggressively tightens monetary policy to tame inflation. U.S. central bank is expected to raise its policy rate by another 75 basis points on Thursday, which would bring the total rate hike since March to 225 basis points.
The Commerce Department also reported on Wednesday that wholesale inventories rose 1.9% in June, while stocks at retailers rose 2.0%.
On the other hand, U.S. factory orders for durable goods rose unexpectedly in June, driven by a surge in defense aircraft and indicating continued demand for equipment despite rising interest rates.
Orders for durable goods rose 1.9% in June compared to 0.8% for May. Order-taking indicates that firms continue to invest despite rising borrowing costs and economic uncertainty.
