WASHINGTON (July 24): The US trade deficit in goods narrowed in June amid a broad rebound in exports, but that probably was insufficient to prevent trade from remaining a drag on economic growth in the second quarter.

The impact on gross domestic product from the trade gap is, however, likely to be offset by a rise in inventories at wholesalers and retailers in June. The government is scheduled to publish its advance estimate of second-quarter GDP growth on Thursday, which is expected to show a pick-up in activity, thanks to a spurt in consumer spending in June.

"The hit to second-quarter GDP growth from net trade will probably be offset by inventories and investment," said Oliver Allen, senior US economist at Pantheon Macroeconomics.

The goods trade gap contracted 2.5% to US$96.8 billion (RM452.4 billion), the Commerce Department's Census Bureau said on Wednesday.

Goods exports increased 2.5% to US$172.3 billion, led by a 4.9% surge in shipments of food. Capital goods exports rose 3.6%. There was also a strong increase in exports of industrial supplies, which include crude oil. Motor vehicles and parts exports rose as well as those of consumer and other goods.

Imports of goods gained 0.7% to US$269.2 billion. Consumer goods imports shot up 3.3%, while those of capital goods advanced 2.6%, which bodes well for business spending on equipment. Imports of other goods rose 2.7%. But imports of industrial supplies, food and motor vehicles fell.

"Goods exports and imports both reversed their May declines in June," said Carl Weinberg, chief US economist at High Frequency Economics. "However, second-quarter imports were higher than the first-quarter average, while exports were weaker."

Economists estimated that trade subtracted as much as 1.4 percentage points from GDP growth last quarter.

Some of the imports in June likely ended up in warehouses at wholesalers and retailers. The report from the Census Bureau also showed wholesale inventories increased 0.2% in June after rising 0.6% in May.

Retail inventories climbed 0.7%, boosted by a 1.8% gain in stocks at motor vehicles and parts dealers. Retail inventories advanced 0.6% in May.

Excluding motor vehicles and parts, retail inventories gained 0.2% in June after dipping 0.1% in May. This category goes into the calculation of GDP. Business inventories are estimated to have added roughly 1.5 percentage points to GDP growth last quarter after subtracting from growth for two straight quarters.

According to a Reuters survey of economists, GDP likely increased at a 2.0% annualized rate in the April-June quarter.

Both trade and inventory investment subtracted from GDP in the first quarter, with the economy growing at 1.4% pace during that period. Economists expect the trade gap to continue to widen, with businesses, wary of new tariffs on foreign goods, ramping up imports ahead of the November presidential election.

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