US: Real net exports could exert a small drag on Q2 GDP growth - Wells Fargo

Trade deficit narrowed in May, data released today showed. According to analysts from Wells Fargo, it appears that real net exports exerted a mild drag on real GDP growth in Q2.

Key Quotes: 

“Data released this morning showed that the U.S. deficit in international trade in goods and services narrowed slightly to $46.5 billion in May from $47.6 billion in April (top chart). The decline in the trade deficit reflected an $855 million increase in exports of goods and services in conjunction with a $223 million decline in imports. The outturn was more or less in line with the consensus forecast.”

“Taking a longer term view, export growth has returned to positive territory after dipping into negative territory last year (middle chart). The collapse in commodity prices depressed the value of industrial exports while deceleration in global economic activity last year weighed on other categories of exports. The stabilization in commodity prices and stronger economic growth in many of the nation’s major trading partners is giving a boost to the value of American exports this year.”

“In real terms, which matters for calculations of real GDP growth, exports of goods rose 1.0 percent in May relative to the previous month while imports of goods edged up 0.1 percent. If real exports of goods in June remained unchanged at May’s level, then they will have been more or less flat in the second quarter on a sequential basis. Real imports looked to have increased modestly in Q2. In short, it appears that real net exports will exert a small drag on overall GDP growth in the second quarter. That said, we project that real GDP will grow at an annualized pace of 2.5 percent in Q2, up from the meager 1.4 percent rate that was registered in Q1.”