US trade deficit narrows to to $101.5B in Jun

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The US goods trade deficit narrowed in June to $101.5 billion due to a larger decline in imports compared to exports. The report highlights softer trade activity amid economic concerns, with a cautious business inventory outlook and potential AI-related import resurgence anticipated.

The US goods trade deficit narrowed in June as imports declined more sharply than exports, though economists expect trade to remain a drag on second-quarter economic growth.Data released by the US Commerce Department on Tuesday showed the goods trade gap narrowed 4.2% to $101.5 billion in June from $105.9 billion in May, as imports fell by $8.2 billion to $306.2 billion, outpacing a $3.8 billion decline in exports to $204.7 billion. Economists polled by Reuters had expected the deficit to narrow to $100 billion.The Census Bureau's monthly advance economic indicators report showed the June improvement was largely driven by lower imports rather than stronger exports. While the trade deficit narrowed, both exports and imports declined during the month, pointing to softer trade activity.Also Read: Wall Street divided on Fed as rising crude prices boost rate hike expectationsImports fell across most major categories. Consumer goods imports declined 3.8%, followed by a 2% drop in capital goods imports. Food imports and automotive vehicle imports each fell 2.5%, while industrial supplies imports declined 1.9%, partly reflecting lower crude oil prices.Exports also weakened, with shipments of industrial supplies falling 4.4%, while food exports declined 3.1% and capital goods exports slipped 1.1%. However, exports of automotive vehicles rose 5.1% and consumer goods shipments increased 3.2%.A Reuters report said the decline in imports likely reflected businesses scaling back stockpiling after earlier efforts to build inventories amid concerns over shortages and higher prices arising from geopolitical tensions. Economists also believe the moderation in imports may prove temporary as companies continue investing in artificial intelligence infrastructure, which depends heavily on imported equipment."With businesses ramping up investment in artificial intelligence, last month's drop in imports is probably temporary," Reuters reported."Our model mapping the trade data onto the national accounts now points to net trade subtracting around one percentage point from second-quarter GDP growth," Oliver Allen, senior US economist at Pantheon Macroeconomics, told Reuters.The Commerce Department's report also showed inventories remained broadly stable, suggesting businesses are maintaining cautious stock levels ahead of the second-quarter GDP release. Wholesale inventories rose 0.3% in June, matching May's increase, while retail inventories were virtually unchanged at $831.3 billion after a 0.5% rise in the previous month. Excluding motor vehicles and parts—a key component in GDP calculations—retail inventories declined 0.2%.The US government is scheduled to release its advance estimate of second-quarter GDP growth on Thursday. A Reuters poll of economists expects the economy to expand at an annualised rate of 2.1% in the April-June quarter, matching the pace recorded in the first quarter. Economists expect the drag from trade to be partly offset by strong business investment and a recovery in consumer spending.