U.S. June trade deficit shrinks | Lexington Herald Leader

WASHINGTON — The U.S. trade deficit has gone on a diet, helped by strong exports of farm products and manufactured goods and by Americans spending less as the economy limps along.

The deficit for June fell by 4.1 percent to $56.8 billion. That's the lowest level in three months and a surprise to economists who had expected an increase reflecting a big surge in oil prices during the month, the Commerce Department reported Tuesday.

While oil prices did rise to a record level, exports of everything from soybeans and corn to aircraft engines and heavy machinery surged by the largest amount in four years, offsetting the rising oil bill.

The better-than-expected June performance left analysts revising their estimates upward for overall economic growth during the April-June quarter to as much as 3 percent. That would be more than a full percentage point higher than the 1.9 percent initial estimate for GDP growth.

Over the past four quarters, trade has been the economy's standout performer. It has contributed four-fifths of what little growth there has been while the country has been battered by the worst housing slump in more than two decades, a severe credit crisis, rising unemployment and soaring energy costs.

Without the boost from trade, economists say the country would almost certainly be in a recession at the moment. Analysts worry about how long the export boom can last, however, given that two of America's biggest overseas markets, Europe and Japan, are at risk of falling into recessions.

”The more severe their slowdown, the greater the likelihood that it will begin to cool the boom in exports,“ said Nigel Gault, an economist at Global Insight, a Lexington, Mass., forecasting firm.

But other analysts said that exports have built up so much momentum that the trade improvement should continue for the rest of the year, given the significant decline in the value of the dollar.