Wider Trade Gap Signals Weaker U.S. Second-Quarter Growth

A swelling trade gap, less stockpiling and weaker construction indicate the U.S. economy slowed even more in the second quarter than the government estimated last month, economists said.

Revisions due later this month may shave last quarter’s 2.4 percent annual growth rate by 1 percentage point or more, according to Morgan Stanley’s David Greenlaw and Nomura Securities International Inc.’s David Resler. The trade deficit in the U.S. unexpectedly widened by $7.9 billion to $49.9 billion in June, Commerce Department figures showed today in Washington.

A surge in imports means American companies contributed less to the rise in gross domestic product, the value of all goods and services produced in the U.S., than previously estimated. Earlier reports showing smaller gains in inventories and less of a rebound in commercial construction than the government projected will also reduce the pace of expansion.

“The slowdown occurred earlier than we thought,” said Harm Bandholz, chief U.S. economist at UniCredit Global Research in New York. “We expected the recovery to lose momentum only in the second half and now it occurred in the second quarter.”

Trade probably subtracted 3.25 percentage points from growth, the most since 1982 and up from the 2.78 points the government estimated last month, Bandholz said.

By Resler’s calculations, the world’s largest economy probably grew at a 1.3 percent pace from April through June, while Greenlaw’s estimate is down to 1.4 percent.

Government Estimates

In its advance estimate of GDP, the Commerce Department estimates June data on trade, inventories and construction spending that were not available at the time of the calculation. Data in two days on retail sales and total business inventories will help complete the picture.

The trade numbers the government uses to calculate GDP, which are adjusted for inflation, deteriorated even more, showing the gap widened to $54.1 billion from $46 in May.

Josh Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York, is among those who said such a surge was probably not repeated last month, so trade will not hurt the economy as much this quarter. Shapiro estimated the second- quarter growth rate will be cut to about 1 percent.

The expiration of export-tax rebates on some Chinese commodities beginning in July may also cut U.S. imports from China in coming months, helping to narrow the deficit and thus contributing to growth in the third quarter, said Bandholz.

“It does appear there are temporary factors weighing on the second quarter,” said Dean Maki, chief U.S. economist at Barclays Capital Inc., who said the rate of growth last quarter may be revised to as low as 0.3 percent.

“It does emphasize we are in a moderate growth environment and not the strong growth we saw in the first couple of quarters of the recovery,” he said.

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

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