Trade deficit narrows as U.S. imports shrink

Despite shrinking imports, economists are worried that consumers' need for foreign goods is not matching up to the increase seen in consumer spending.
By Ananth Baliga  |  Aug. 6, 2014 at 12:11 PM
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WASHINGTON, Aug. 6 (UPI) -- U.S. trade deficit dropped in June as imports declined sharply, possibly boosting second-quarter growth numbers, but also raising concerns about local demand.

The trade gap shrank by 7 percent to $41.5 billion in June, which is the fastest decline since last November, according to the Commerce Department. The decline in imports was attributed to a drop in purchases of foreign goods, including autos and cellular phones, as well as a sharp drop in petroleum imports.

"The U.S. is doing better than most advanced countries," said Jay Bryson, global economist at Wells Fargo Securities. While exports also may rise, "overall, trade won't add a whole heck of a lot to economic growth."

Economists expect demand for foreign goods to rebound in the next few months as consumer spending increases. Exports remained unchanged for the month, showing that the international economy, especially European markets, are struggling to recover amid the recent geopolitical tensions.

Economists surveyed by the Wall Street Journal and Bloomberg estimated a deficit of $44.6 billion and $44.8 billion respectively.

As the labor market shows signs of improvement, consumer spending and business investments have improved, being the major drivers of the 4 percent growth seen in the second quarter. Importers will hope consumers' appetite for foreign goods will increase in the next few months and ramp up their spending.

"The broad-based declines in import activity seem at odds with the narrative of improving domestic demand," TD securities economist Millan Mulrain told the Wall Street Journal.

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