U.S. trade deficit widens in July as imports rebound

The U.S. trade deficit widened slightly more than expected in July as exports dipped, but a rebound in imports pointed to some firming in underlying demand early in the third quarter.

The U.S. Commerce Department said on Wednesday the trade gap increased 13.3 per cent to $39.1 billion US. June's shortfall on the trade balance was revised to $34.5 billion from the previously reported $34.2 billion.

Economists polled by Reuters had expected the trade deficit to rise to $38.7 billion in July.

When adjusted for inflation, the trade gap rose to $47.7 billion from $43.8 billion in June. This measure goes into the calculation of gross domestic product.

Trade's contribution to GDP growth in the second quarter was neutral, but economists expect it to add to growth this quarter and the rise in the so-called real trade deficit is probably not enough to change that view. The economy grew at a 2.5 per cent annual rate in the April-June quarter, stepping up from the first-quarter's 1.1 per cent pace.

The three-month moving average of the trade deficit, which irons out month-to-to month volatility, decreased to $39.1 billion in the three months to July from $39.3 billion in the prior period.

Strengthening of demand

The increase in imports in July, which reflected rises in industrial supplies, automobiles and consumer goods, suggested some strengthening in domestic demand.

Imports of goods and services rose 1.6 percent to $228.6 billion. Imports of autos, parts and engines were the highest on record in July.

Exports of goods and services dipped 0.6 per cent to $189.4 billion in July. However, exports of petroleum products hit a record high.

Weak overseas demand, especially in Europe, has caused an ebb in export growth after trade helped to lift the U.S. economy out of the 2007-09 recession.

In July, exports to the 27-nation European Union fell 7.4 per cent resulting in a record trade deficit. Exports to the EU in the first seven months of the year were down 4.4 per cent compared to the same period in 2012.

Exports to China fell 4.9 per cent. China has been one of the fastest-growing markets for U.S. goods, but growth there has slowed in recent months and exports to that country were up just 4.0 per cent for the first seven months of 2013.

Imports from China jumped 8.3 per cent in July, lifting the contentious U.S. trade deficit with China to a record $30.1 billion.