--Economists slash second-quarter growth forecasts after trade, inventory data
--Trade gap may weigh on economy, while inventories could provide some support
WASHINGTON--The U.S. trade deficit narrowed for the second straight
month in May, as exports picked up and falling oil prices helped drive
down imports.
But the weakening outlook for global growth, as well as disappointing
inventory data, convinced some economists that the U.S. economy slowed
more than expected in the second quarter.
"Recent economic news highlighting weaker inventory stocking as well
as softer international trade have caused us to cut our forecast,"
said analysts at Deutsche Bank Securities Inc., slashing their
second-quarter estimate by a full percentage point to a 1.4% growth
rate.
Barclays cut its second-quarter growth forecast, as well, to 1.5% to
2.5%, following the trade and wholesale inventory reports for May.
"Trade looks to have been a modest drag on Q2 growth, instead of the
slight boost we had projected, and slower inventory building also
looks to have subtracted modestly from growth," said Dean Maki, an
economist at Barclays Capital.
The U.S. deficit in international trade of goods and services
decreased 3.8% to $48.68 billion from an upwardly revised $50.60
billion the month before, the Commerce Department said Wednesday.
That was in line with Wall Street expectations for a $48.7 billion deficit.
Trade has contributed to the U.S. economic recovery so far this year,
adding a tenth of a percentage point to the 1.9% growth rate in the
first quarter.
But depending on June figures, it could subtract from growth in the
second quarter. That's because inflation-adjusted deficit that
economists use to measure the impact of trade on GDP remains higher
than the average level of $47.68 billion reached during the first
quarter. The real deficit fell to $47.98 billion in May from $48.65
billion the month before.
One positive is that oil prices are expected remain low, having
receded in May, as concerns about the global economy have begun to
outweigh geopolitical considerations like the ongoing conflict with
Iran.
In May, the average price of imported crude oil fell $2.03 to $107.91
a barrel after reaching its highest level in nearly four years the
month before. The cost of crude imports declined to $29.38 billion
from $29.68 billion, though crude import volumes rose by 2.3 million
barrels to 272.3 million.
The drop in oil prices also impacted wholesale inventories, which
increased mildly in May as sales showed the largest drop in more than
three years.
U.S. wholesalers' inventories increased by 0.3% from the prior month
to a seasonally adjusted $484.13 billion, the Commerce Department
said. Economists surveyed by Dow Jones Newswires had forecast a 0.4%
gain.
Sales for wholesalers were down 0.8% in May to $409.63 billion, as
petroleum purchases fell 4.7%.
Wholesale petroleum inventories dropped 3.6%, with total non-durable
goods inventories falling 0.2%. Inventories of durable goods increased
by 0.6% in May, led by restocking of autos, up 1.3% during the month,
and machinery, up 1.4%.
A slower build up of private inventories contributed to the gross
domestic product growing at only a 1.9% rate in the first quarter
compared to a 3.0% annualized gain in the fourth quarter of 2011.
The amount of wholesale goods on hand relative to sales in May was
1.18, the highest level in 10 months. But that ratio, which measures
how many months it would take for a firm to deplete its current
inventory, remains "quire lean," said Steven Wood, chief economist at
Insight Economics LLC. He expects inventories to make another slight
contribution to second-quarter growth.
Meanwhile, the trade report showed the deficit with China expanded
6.1% to $26.04 billion, as imports from the No. 2 trading partner to
the U.S. outpaced rising exports.
The trade gap with China is increasingly becoming an issue in the U.S.
presidential campaign, with Republican challenger Mitt Romney pledging
to declare Beijing a currency manipulator if he defeats President
Barack Obama in November. Critics in both parties blame the weak yuan
for providing an unfair trade advantage.
Elsewhere, exports to euro zone recovered after contracting sharply
the previous month amid concerns about the debt crisis. Sales to
countries using the euro climbed 4.2% in May, though the trade gap
with the region rose to $8.55 billion from $7.56 billion due to a jump
in imports.
Write to Tom Barkley at tom.barkley@dowjones.com and Eric Morath at
eric.morath@dowjones.com.
(END) Dow Jones Newswires
July 11, 2012 09:05 ET (13:05 GMT)
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