US trade gap likely rose in July, economists forecast

Economic Indicators Associated Press

The Commerce Department reports on the U.S. trade deficit in July. The report will be released Wednesday at 8:30 a.m. Eastern.

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INCREASE LIKELY: Economists forecast that the deficit rose slightly to $42.2 billion, compared with $41.5 billion in June, according to a survey by FactSet.

Imports dropped sharply in June because of lower shipments of cellphones, petroleum and autos that month. Sales of motor vehicles indicate that auto imports rose in July.

GROWTH FACTOR: The trade deficit's drag on the economy lessened in the April-June quarter, after having hurt growth in the first three months of the year.

Exports fell 9.2 percent in the first quarter, likely due to slower growth in Europe and China. Imports simultaneously rose during the first quarter, contributing to the economy shrinking at an annualized rate of 2.1 percent in the first three months.

Imports, meanwhile, rose in the first quarter. A wider trade deficit can act as a drag on growth because it means U.S. companies are earning less from their foreign sales. But strength in imports can also be a sign of growing consumer demand and a rebounding U.S. economy.

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Overall, the trade deficit lowered growth by 1.6 percentage points in the first quarter. The economy shrank at a 2.1 percent seasonally adjusted annual rate, the worst showing since the recession.

Exports rose in June to $195.9 billion, a record high. Imports shrank 1.2 percent that month to $237.4 billion. The lower trade deficit figures helped reduce the drag on economic growth in the second quarter, as the economy improved at an annualized clip of 4.2 percent.

Still, the trade deficit has widened in the first six months of this year to $260 billion, up from $242.7 billion in the first half of 2013. Imports have risen faster than exports. But an increase in imports often means that consumers and businesses are spending more.

In 2013, the trade deficit declined by 11.4 percent. That reflected in part a boom in U.S. energy production that cut into America's dependence on foreign oil, while boosting U.S. petroleum exports to a record high.

The nation's trade balance in oil has continued to improve this year. The U.S. had a petroleum trade deficit of $105.3 billion in the first half of this year, down from $125.7 billion last year.