WASHINGTON—The U.S. trade deficit in goods narrowed in May as imports fell, but the improvement was probably insufficient to prevent trade from being a drag on economic growth in the second quarter.
The hit from trade on gross domestic product was, however, likely to be offset by a rise in inventory investment, with the report from the Commerce Department on Wednesday also showing retail inventories increasing strongly last month.
A raft of upbeat data this month, including nonfarm payrolls, retail sales, durable goods orders, and housing starts, have suggested that the economy remained on a steady growth path in the second quarter, defying growing fears of a recession.
The goods trade deficit decreased 6.1 percent to $91.1 billion last month, leaving the bulk of April’s surge intact.
“Even with the narrowing in May, the goods trade deficit is up by over 10 percent since March, and trade will likely be a drag on economic growth in the second quarter,” said Abbey Omodunbi, a senior economist at PNC Financial in Pittsburgh, Pennsylvania.
Imports dropped 2.7 percent to $254.0 billion. While the decline in imports helped shrink the deficit, it suggested that domestic demand was softening. The drop was led by a 7.3 percent plunge in consumer goods imports. Industrial supplies imports, which include crude oil, fell 5.9 percent. Food imports slipped 3.0 percent.
But capital goods imports rose 1.3 percent, a good omen for business investment. Imports of motor vehicles and parts increased 0.9 percent.
Exports of goods fell 0.6 percent to $162.8 billion, pulled down by a 14.2 percent tumble in food shipments. Industrial supplies exports dropped 3.0 percent. But the nation saw an 8.7 percent jump in exports of motor vehicles and parts. Consumer goods exports vaulted 4.3 percent and shipments of other goods increased 2.4 percent.
Trade made no contribution to the economy’s 1.3 percent annualized growth rate in the first quarter after adding to GDP for three straight quarters.
The report also showed that retail inventories increased 0.8 percent last month after gaining 0.3 percent in April. Motor vehicle inventories shot up 2.9 percent following a 1.6 percent advance in the prior month. Excluding motor vehicles, retail inventories were unchanged after decreasing 0.3 percent in April.
This component goes into the calculation of GDP. Wholesale inventories dipped 0.1 percent last month after dropping 0.3 percent in April.
Private inventory investment rose at its slowest pace in 1–1/2 years in the first quarter, chopping off 2.10 percentage points from GDP growth in that period.
The Atlanta Federal Reserve is currently estimating second-quarter GDP rising at a 1.8 percent rate.
