US trade deficit narrows in July, helped by lesser imports

September 9, 2010 1:01 PM EDT

The U.S. trade deficit narrowed much more than economists expected in July, after it hit the highest level in nearly two years in June.

Goods and services deficit in July fell to $42.8 billion, from $49.8 billion in June. July exports were up $2.8 billion at $153.3 billion and imports were $4.2 billion less at $196.1 billion.

Previous image Enlarge Close Next image

Share This Story

Economists surveyed by Thomson Reuters expected the deficit to dip to $47.3 billion in July.

The rise in export of goods were mainly because of capital goods. However, export of automotive vehicles, parts and engines fell during the month. U.S. also imported more consumer goods, automotive vehicles and parts and engines among other things.

Paul Dales, U.S. economist at Capital Economics, commented that the narrowing in the trade deficit in July suggests that net external demand will have a broadly neutral impact on GDP growth in the third quarter.

“The recent slowing in overseas activity suggests that annual export growth will eventually slow to around 5%,” he said.

Must Read

Sponsorship Link

Like us on Facebook

“The trade deficit is therefore likely to trend modestly wider.”

The deficit with China narrowed marginally to $25.9 billion from $26.2 billion last month. High trade deficits with China has led to more pressure on Congress to pass legislation that would impose trade sanctions on Chinese imports unless the Chinese government allows its currency to rise against the dollar.

China should let its yuan appreciate faster to show it will follow up on its promises, U.S. Treasury Secretary Timothy Geithner said on Wednesday. The yuan has only appreciated less than 1 percent against the dollar since June.

China reports its trade surplus on Friday. Economists are expecting the country to report trade surplus of more than $20 billion in August for the third straight month.

Economists polled by Thomson Reuters expect China's August trade surplus to be close to July's 18-month high of $28.7 billion.

“July's bilateral deficit with China was still the second highest on record,” Dales noted.

“With conventional monetary and fiscal policy almost all tapped-out, the temptation for policymakers to turn to trade policy as an alternative means of boosting the economy remains large.”

This article is copyrighted by International Business Times, the business news leader