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US Commodity Trade Deficit, Business Spending Data May Save Second Quarter GDP

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  • June commodity trade deficit down 5.6% to $ 98.2 billion
  • Wholesale inventory will increase by 1.9%.Retail inventory increased by 2.0%
  • Orders for core capital goods will increase by 0.5%.Shipments will increase by 0.7%

Washington, July 27 (Reuters)-US commodity trade deficit contracted sharply in June due to a surge in exports, but business spending on equipment remained strong and the economy contracted again in the second quarter. Reduced risk.

A better-than-expected report from the Commerce Department on Wednesday left economists struggling to upgrade their GDP estimates for the previous quarter. The data was released prior to the release of GDP estimates for the second quarter on Thursday.

Numerous weak housing data and weak business and consumer sentiment surveys have raised expectations for a quarterly negative GDP reading for the second consecutive year, exacerbating concerns about a recession.

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JP Morgan now expects the economy to grow at an annual rate of 1.4% instead of the previously predicted 0.7% pace.

“This morning’s data are confident that tomorrow’s release will not reduce GDP in the second quarter,” said Veronica Clark, an economist at Citigroup in New York.

The trade deficit shrank 5.6% to $ 98.2 billion, the lowest since November last year. Commodity exports increased $ 4.4 billion to $ 181.5 billion. Exports of food and industrial products have increased significantly. However, not only automobiles and parts, but also capital and consumer goods were not exported.

Commodity imports fell $ 1.5 billion to $ 279.7 billion. They were reduced by car and food imports. However, imports of consumer and capital goods increased significantly.

Trade has been deducted from GDP for the seventh consecutive quarter, and expected contributions to GDP from smaller gaps could offset expected resistance from inventories.

Companies continue to rebuild their inventories, but at a slower pace than what was seen in the fourth quarter of 2021 and the first three months of the year. As consumer spending slows, companies are also paying attention to inventory buildup.

Wal-Mart (WMT.N) said Monday that further price cuts were needed to reduce inventories. Back in May, retailers said they had over $ 60 billion in inventories at the end of the first more

The Commerce Department also reported on Wednesday that wholesale inventories increased by 1.9% in June, while retailers’ inventories increased by 2.0%. Retail inventories were boosted by a 3.1% surge in car inventories.

Excluding automobiles, retail inventories increased 1.6%. This factor goes into the calculation of GDP.

“We expect the reduction in the trade deficit in the second quarter to support headline GDP growth more than previously expected, and resistance from inventory is also higher than previously expected,” said economist Daniel Silver. I expect that there will be few. ” At JP Morgan in New York.

GDP could grow at an annual rate of 0.5% in the second quarter, according to a Reuters economist survey. The survey was conducted before Wednesday’s data. The economy shrank at a pace of 1.6% in the first quarter.

Investors are nervous about another negative quarterly GDP reading, which means a technical recession.

However, GDP is just one of many indicators tracked by the National Bureau of Economic Research, the official mediator of the US recession. Therefore, the second consecutive quarter of GDP contraction does not mean that the economy was in recession.

Wall Street stocks were high. The dollar was stable against a basket of currencies. US Treasury prices have risen.

Cooling activity

Economic activity is chilling as the Federal Reserve aggressively tightens monetary policy to curb inflation. The US central bank is expected to raise the policy rate by another 75 basis points later Wednesday, bringing the total interest rate hike from March to 225 basis points.

Despite rising interest rates and growing concerns about recession, companies are still investing in equipment. In another report Wednesday, the Commerce Department said orders for non-defensive capital goods, excluding aircraft, increased by 0.5% last month.

Orders for these so-called core capital goods increased 0.5% in May. Economists surveyed by Reuters predicted that orders for core capital goods would increase by 0.2%. Orders received in June increased 10.1% year-on-year.

Computers, electronic products, electrical equipment, electrical appliances,

And components. However, machine orders have fallen.

Shipments of core capital goods increased 0.7% after a 1.0% increase in May. Shipments of core capital goods are used to calculate capital expenditures in GDP measurements.

Ryan Sweet, senior economist at Moody’s, said, “Part of the rise is due to higher prices, but the lack of a sustained decline in orders is due to tight financial markets, lower sentiment and a recession. Despite concerns, it suggests that companies are still investing. ” Analysis in West Chester, Pennsylvania.

Orders for durable consumer goods, which last for more than three years from toasters to aircraft, surged 0.8% in May and then surged 1.9% in June. It was boosted by a 5.1% surge in transportation equipment orders. Car orders increased by 1.5. Orders for defense aircraft surged 80.6%.

Orders for unfilled durable consumer goods increased 0.7%. This should keep the manufacturing industry humming for some time. Inventory increased by 0.4%.

Lydia Busser, a U.S. economist at Oxford Economics in New York, said, “Financial conditions make capital investment projects more expensive, but higher interest rates do not completely undermine the outlook for business investment. “.

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Report by Lucia Mutikani; edited by Paul Simao, Andrea Ricci, Chizu Nomiyama

Our Criteria: Thomson Reuters Trust Principles.