By Eric Morath
WASHINGTON--The U.S. trade deficit narrowed in May, reflecting
resurgent demand for American products overseas and fewer barrels
of oil flowing into the country.
But trade will likely remain a headwind to U.S. economic growth
in the second quarter partly because foreign imports outside of
petroleum reached a record high in May. Imports subtract from
domestic output.
The trade deficit shrank 5.6% to a seasonally adjusted $44.39
billion in May from April, the Commerce Department said Thursday.
Exports increased 1.0% to $195.46 billion, the highest level on
record. Imports fell 0.3% to $239.85 billion.
The latest figures led forecasting firm Macroeconomic Advisers
to lower its estimate of second-quarter growth by 0.6 percentage
point to an annualized 2.7%. The firm had expected imports to
contract more after relatively strong gains earlier in the
spring.
"Domestic spending on imported goods and services was more than
we thought," said Ben Herzon, senior economist at Macroeconomic
Advisers. The data suggests resilient underlying demand on the part
of American businesses and consumers, but means expansion in gross
domestic product will remain sluggish as the economic recovery
enters its sixth year.
The economy contracted at a 2.9% pace in the first quarter. If
the second-quarter reading, due out later this month, comes in
below 3% growth, the economy will have significantly sputtered in
the first-half of the year, diminishing hopes for a breakout
performance in 2014.
A weak GDP reading would stand in contrast to June employment
numbers that show one of the best five-month stretches of job
creation since the late 1990s. Typically hiring supports consumer
spending and broader economic gains. But any significant economic
acceleration appears to now be on hold at least until the
second-half of the year. Second-quarter forecasts are running only
slightly ahead of the 2.4% pace averaged from mid-2009 through the
end of last year.
One key driver of the first-quarter contraction was weak
exports. The May data showed an uptick after exports largely had
held flat since last fall. Exports of cars and consumer goods hit
record during the month.
Thursday's data showed signs that demand is accelerating in two
of America's largest export markets, Europe and China, where weak
growth has hobbled the U.S. and global recoveries. Exports to the
European Union were up nearly 4% in May, on a non-seasonally
adjusted basis, driven by a surge in buying from the U.K., the
Netherlands, Spain and Ireland.
Sales to China, where economists fear growth could continue to
decelerate, were up more than 2% to $9.2 billion.
U.S. "exports will increase as most of the global economy
expands, in large part due to positive, albeit still-weak growth in
Europe," said Gus Faucher, senior economist at PNC Financial
Services Group.
Petroleum played a large role in narrowing the May deficit.
By one measure petroleum imports touched an 18-year low. Average
daily imports of crude oil, 6.9 million barrels, were the lowest
since March 1996. Meanwhile, U.S. petroleum exports hit the highest
level of 2014.
When excluding petroleum, the trade gap expanded.
"This indicates that trade will be a drag on the economy again
in the second quarter, which weakens the argument for a rebound in
GDP," said Steven Ricchiuto, chief economist at Mizuho Financial
Group.
Ian Talley contributed to this article.
Write to Eric Morath at eric.morath@wsj.com