US trade gap expected to narrow slightly in May after hitting two-year high

The Commerce Department reports on the U.S. trade deficit in May. The report will be released at 8:30 a.m. EDT Thursday.

SLIGHT DECLINE: The forecast is that the deficit narrowed slightly to $45 billion in May, according to a survey of economist by FactSet.

GROWTH SUPPORT: In April, the trade gap jumped to a two-year high of $47.2 billion as exports declined and imports surged to a record, reflecting heavy imports of foreign-made cars. The decline in exports was the fourth drop in the past five months, raising concerns about whether U.S. manufacturers could be finding it harder to sell in overseas markets.

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 a rebounding U.S. economy.

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 larger trade gap in the first three months of this year, compared to the fourth quarter, shaved 1.5 percentage points from growth, helping to push the economy into reverse with total output falling at an annual rate of 2.9 percent in the January-March period.

In addition to a higher trade deficit, the economy was held back by severe winter which dampened consumer spending. Analysts are looking for a better performance form U.S. exports and improvements in other areas to propel growth in the April-June quarter to an annual rate of between 3 percent and 3.5 percent. They also expect the economy will keep growing in the second half of the year at a solid rate of around 3 percent.

The U.S. trade deficit with China is the largest imbalance with any country. Both nations will meet in Beijing on July 9-10 for annual high-level talks covering economic and foreign policy issues. Previewing the discussions on Tuesday, Treasury Secretary Jacob Lew said the Obama administration would push China to allow its currency to rise against the dollar. The Chinese yuan has declined by about 2.4 percent against the dollar so far this year.

American manufacturers contend the Chinese currency is undervalued by as much as 40 percent and the Chinese government is manipulating the value to gain trade advantages. A weaker yuan makes Chinese goods cheaper in the United States and U.S. products more expensive in China.

Lew said that computer security would be another issue discussed. In May, the Justice Department charged five Chinese military officers with hacking into U.S. companies' computer systems to steal trade secrets.