WASHINGTON, July 27 (Reuters) – The U.S. trade deficit in goods narrowed sharply in June amid a surge in exports, potentially easing fears of a further contraction in the economy in the second quarter.
The merchandise trade deficit narrowed 5.6% to $98.2 billion, the Commerce Department said Wednesday. Goods exports rose $4.4 billion to $181.5 billion. Imports of goods fell $1.5 billion to $279.7 billion. The anticipated contribution to gross domestic product from the smaller trade gap is likely to offset an expected slowdown in inventories.
A slowdown in consumer spending in the last quarter is thought to have discouraged businesses from maintaining the same pace of strong inventory accumulation as in the first quarter.
The government’s preliminary second-quarter GDP report on Thursday is expected to show the economy rebounding at an annualized rate of 0.5%, according to a Reuters survey of economists. The economy contracted at a pace of 1.6% in the first quarter. A barely growing economy would heighten fears that a recession is imminent, especially with the interest-rate-sensitive housing and manufacturing sectors having experienced a significant slowdown in recent months.
The labor market is also running out of steam, although it remains quite tight. Initial jobless claims are at their highest level in eight months. Economic activity is slowing as the Federal Reserve aggressively tightens monetary policy to control inflation. The U.S. central bank is expected to raise its benchmark rate another 75 basis points on Wednesday, bringing the total interest rate hikes since March to 225 basis points.
Trade has subtracted from GDP for seven consecutive quarters.
The Commerce Department also reported Wednesday that wholesale inventories rose 1.9% in June, while retail inventories rose 2.0%.
Walmart cut its profit forecast on Monday and said it needed further price cuts to reduce inventory. In May, the retail leader said it was sitting on more than $60 billion in inventory at the end of the first quarter. (Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)