AP News

Ahead of the Bell: US trade gap

WASHINGTON (AP) — The U.S. trade deficit likely widened slightly in July after falling in June to its lowest point since 2009 — a key reason economic growth was revised up for the April-June quarter.

Economists forecast that the deficit rose to $38.6 billion, according to a survey by FactSet. In June, the deficit — which shows how much the value of U.S. imports exceeds the value of exports — dropped to $34.2 billion. Exports reached a record high, and imports fell.

The Commerce Department will release the report at 8:30 a.m. EDT Wednesday.

For the April-June quarter, the government upgraded its estimate of the economy's growth to an annual rate of 2.5 percent from an initial estimate of a 1.7 percent rate. The major factor was improving trade: The government now estimates that trade was a neutral factor in the April-June quarter. Originally, it estimated that trade subtracted 0.8 percentage point from the quarter's annual growth rate.

Some economists predict that trade will be a positive factor in the second half of this year and help accelerate growth. Analysts at JPMorgan forecast that trade will add about one-half percentage point to annual growth in both the July-September and October-December quarters. They expect exports to outpace imports.

A narrower trade gap typically lifts economic growth. It means the value of goods U.S. companies are selling overseas is outpacing the value of foreign goods U.S. consumers and businesses are buying.

Many analysts predict that the economy will grow at around a 2.5 percent annual rate in the second half of this year. In part, that's because they expect the drag from tax increases and government spending cuts to ease.

But some economists have begun to worry about signs of weakness, especially after the government said last week that consumer spending slowed in July, held back by weak income growth. One factor was the furloughing of some federal government workers. That was a result of the government spending cuts that kicked in earlier this year.

But there have also been signs of a rebound. U.S. factories expanded in August at the fastest pace since June 2011. The Institute for Supply Management said its manufacturing index rose to 55.7 in August from 55.4 in July. A reading above 50 signals growth in manufacturing.

The report said orders from overseas rose in August, a sign that improving economies in Europe and China may be boosting U.S. manufacturers. The 17 countries that use the euro grew in the April-June quarter after six quarters of recession.

And a private survey of purchasing managers in China found that manufacturing in that country expanded for the first time after shrinking for three months.

The Federal Reserve is closely watching economic data to determine whether it should reduce its monthly bond purchases. Those purchases have been intended to keep long-term borrowing costs low.

Chairman Ben Bernanke has said the Fed could slow its $85 billion a month in bond buying later this year if the economy keeps improving. Some analysts think the Fed will announce after its next policy meeting Sept. 17-18 that it's scaling back the purchases.

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