By Eric Morath
WASHINGTON--The U.S. trade deficit narrowed more than expected
in June amid a sharp decline in imports, a development that's
likely to boost economic-growth readings but raises a concern about
domestic demand.
The U.S. trade deficit shrank 7% to a seasonally adjusted $41.54
billion in June from May, the Commerce Department said Wednesday.
That was the fastest contraction in the gap since last November.
Imports fell 1.2% in June, the steepest decline in a year, while
exports increased 0.1% to reach a record high.
The smaller gap than projected has many economists expecting the
government to upgrade its measure of second-quarter gross domestic
product later this month. The trade deficit has shrunk about 6%
since March; a narrower trade deficit generally supports economic
growth.
Forecasting firm Macroeconomic Advisers now projects GDP, the
broadest measure of goods and services produced across the economy,
expanded at 4.2% rate during the quarter. Other economists project
as high as a 4.5% gain. Last week, the Commerce Department said GDP
expanded at 4.0% annual pace from April through June.
The latest data also may support third-quarter growth. Imports,
especially outside of oil, surged in April and May, but fell back
in June.
"A further correction is likely over the next two months," said
IHS Global Insight economist Patrick Newport. "As a result, imports
will be a much smaller drag on growth than they were in the second
quarter."
But the trend isn't entirely positive. It suggests importers may
not be confident that U.S. consumers will ramp up spending heading
into the second half. That runs counter to the Commerce
Department's measure of consumer spending, which increased steadily
during the second quarter.
The June decline in imports was led by decreased U.S. demand for
consumer goods, automobiles and parts and foreign oil.
"The broad-based declines in import activity seem at odds with
the narrative of improving domestic demand," said TD securities
economist Millan Mulraine.
Growth in consumer spending eased in the first quarter and
exports fell, contributing to the economy to contracting at a 2.1%
rate. Those factors reversed in the second quarter, supporting the
rebound in growth.
Exports rose sharply in May and held those gains in June. The
small June improvement was led by increased foreign demand for U.S.
cars, consumer goods and services, which includes travel and
intellectual property use.
The numbers coincide with improved growth in China this spring
and a stabilizing European economy. However, unrest in the Middle
East, Africa and Ukraine could pose headwinds to global trade.
The U.S. trade ledger with Russia fell in June amid an
escalating sanctions battle over the conflict in Ukraine. Exports
plummeted 34% on the month to the lowest level since January last
year. Imports from Russia fell nearly 10%. Russia, however,
accounts for a relatively small share of total U.S. trade.
Trade with China, the No. 2 U.S. partner, has expanded modestly
this year. The U.S. trade gap for goods with China widened 4.9%
through June, compared with the same period a year earlier. That is
only slightly larger than the 4% overall growth in the goods-trade
deficit.
The goods deficit with European Union expanded 15.2% in the
first half.
The gap with Canada, the largest U.S. trading partner, widened
this year. But the gap with Mexico, Japan and Brazil narrowed
during the first six months of 2014.
Ian Talley contributed to this article.
Write to Eric Morath at eric.morath@wsj.com and Jonathan House
at jonathan.house@wsj.com