Moments ago the BEA reported that the June trade deficit (which is the last month of Q2 GDP) came in $3 billion better than expected, declining from $44.7 billion to $41.5 billion, beating consensus $44.8 billion, as exports increased and imports decreased. The previously published May deficit was $44.4 billion. The goods deficit decreased $3.0 billion from May to $60.3 billion in June; the services surplus increased $0.1 billion from May to $18.7 billion in June.
The breakdown [6]:
Exports
Exports of goods and services increased $0.3 billion in June to $195.9 billion, reflecting increases in both exports of goods and exports of services.*
- The increase in exports of goods mainly reflected increases in consumer goods and in automotive vehicles, parts, and engines. Other goods and foods, feeds, and beverages decreased.
- The increase in exports of services was more than accounted for by an increase in travel (for all purposes including education). Partly offsetting was a decrease in transport, which includes freight and port services and passenger fares.
Imports
Imports of goods and services decreased $2.9 billion in June to $237.4 billion, mainly reflecting a decrease in imports of goods. Imports of services were nearly unchanged.
- The decrease in imports of goods mostly reflected decreases in consumer goods and in automotive vehicles, parts, and engines.
- Imports of services were nearly unchanged as an increase in charges for the use of intellectual property, which included payments for the rights to broadcast the portion of the 2014 soccer World Cup that occurred in June, was mostly offset by a decrease in transport.
Goods by geographic area (seasonally adjusted, Census basis)
- The goods deficit with the European Union decreased from $12.8 billion in May to $11.5 billion in June. Exports increased $0.8 billion to $24.2 billion, and imports decreased $0.5 billion to $35.7 billion.
- The goods deficit with India decreased from $2.1 billion in May to $1.3 billion in June. Exports increased $0.3 billion to $1.9 billion, and imports decreased $0.5 billion to $3.2 billion.
- The goods deficit with China increased from $28.1 billion in May to $29.2 billion in June. Exports were nearly unchanged at $9.7 billion, and imports increased $1.0 billion to $38.9 billion.
All of the above is good news... for Q2 GDP, which will be revised some 0.2% higher on this news (offsetting major downward inventory reductions which will appear in subsequent GDP reports). However, the rebound in H1 trade means - to borrow a line from the Keynesians - less Q3 GDP growth from trade, and as a result we expect Q3 GDP to be revised, in turn, lower.
Finally, and perhaps most importantly, the trade deficit excluding the shale boom, i.e., America's reduced petroleum import needs which may last for a few more years before shale oil too is exhausted - just printed close to record highs. In other words, US trade ex oil is about as bad as it has ever been!
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