U.S. Trade Deficit Narrowed 2.3% in May -- Update

The U.S. trade deficit narrowed in May as exports rose to their highest level in more than two years.

The foreign-trade gap in goods and services narrowed 2.3% from the prior month to a seasonally adjusted $46.51 billion in May, the Commerce Department said Thursday. Economists surveyed by The Wall Street Journal had expected a smaller trade deficit of $46.2 billion for the month.

Imports fell 0.1% in May to $238.54 billion, and exports rose 0.4% from April. Total exports were $192.03 billion in May, the strongest month for overseas sales since April 2015.

"The survey evidence suggests that annual export growth will accelerate from here, reflecting the strength of the global economy and the slight depreciation of the U.S. dollar since the beginning of the year," said Michael Pearce, U.S. economist at Capital Economics, in a note to clients.

Data on international trade can be volatile from month to month, and the figures weren't adjusted for inflation. The deficit had jumped in April and even after narrowing in May it was larger than at any point last year.

Both imports and exports have risen this year, reflecting a stronger world economy driving an upswing in global trade flows. The dollar has strengthened against other currencies since 2014 but weakened since late last year; a strong dollar makes U.S. products more expensive for foreign customers.

"Exports have shown greater strength this year, in part reflecting a pickup in global growth," Federal Reserve Chairwoman Janet Yellen said last month.

In the first five months of 2017, the value of U.S. imports rose 7.3% while U.S. exports increased 6.0% compared with the same period a year earlier. The overall trade deficit was up 13.1% compared with the first five months of 2016.

Export demand could strengthen further headed into the second half of the year. The Institute for Supply Management said Monday its index tracking new export orders at U.S. factories rose to 59.5 in June. The U.S. imports more goods than it exports, though it runs a trade surplus for services. The overall trade deficit totaled $504.79 billion in 2016, or roughly 2.7% of economic output as measured by nominal gross domestic product.

President Donald Trump campaigned for the White House on skepticism about current U.S. trade agreements. "The fact is that the United States has trade deficits with many, many countries, and we cannot allow that to continue," Mr. Trump said last week at a meeting with South Korean President Moon Jae-in.

Looking only at trade in goods, U.S. deficits with China and the European Union narrowed in May from the prior month but remained sizable. The U.S. ran trade surpluses during the month with the U.K. and Latin America.

The U.S. economy has run overall trade deficits for decades, during both economic expansions and recessions, which economists say reflects the fact that Americans consume more than they produce relative to the rest of the world. To shrink or eliminate the gap, the U.S. would either have to produce more or consume less.

International trade was a slight tailwind for overall economic growth in the first quarter, with net exports contributing 0.23 percentage point to the 1.4% annualized growth rate for GDP, according to Commerce Department data. Some forecasters estimated trade is on track to be a modest drag on GDP growth in the just-completed second quarter.

Write to Ben Leubsdorf at ben.leubsdorf@wsj.com

(END) Dow Jones Newswires

July 06, 2017 10:17 ET (14:17 GMT)