---- By Corbett B. Daly ----
WASHINGTON (AFX) - The unexpected narrowing in the US trade deficit for May signals that growth estimates for the second quarter will remain positive, economists said.
For those who had forecast slight negative growth, it caused revisions into the black, while those who had already predicted positive growth changed their estimates upward.
The Commerce Department reported that the trade deficit narrowed sharply to a seasonally-adjusted 28.3 bln usd in May. The deficit shrank as a result of a 0.9 pct increase in exports, while imports dropped by 2.4 pct. Exports contribute to GDP growth, while imports detract from GDP growth.
"These numbers will likely make the difference between positive and negative GDP growth in Q2," said Ian Shepherdson of High Frequency Economics in Valhalla, New York.
Shepherdson said the deficit's deviation from what was expected caused him to revise his forecasts.
"Had the deficit been in line with consensus, we would have forecast growth at between negative 1/4 pct and negative 1/2 pct. Now we think it will be more like 1/2 pct" on the plus side, he said. The consensus forecast of economists polled by AFX News had predicted the May deficit would widen slightly to 32.7 bln usd.
Economists had expected slower growth in the second quarter due to weakness in the factory sector and also because businesses have been drawing down their inventories. Strength in the trade sector could offset the impact of the inventory drawdown.
The department agreed that the unexpected deficit narrowing in May signals that growth estimates for the first quarter will remain positive.
"I expect it to remain on the positive side," Commerce Secretary Don Evans told reporters at a news conference, referring to the gross domestic product (GDP) advanced estimate to be released July 27. And those who had not predicted negative growth for Q2 GDP made upward revisions to their forecasts for second-quarter growth.
"We did increase or annualized real GDP growth forecast from 1.5 pct to 2.0 pct this morning," said Dana Saporta, economist at Stone and McCarthy Research Associates in Princeton, New Jersey.
She said net exports would add 8 bln usd to Q2 GDP, rather than the 10 bln usd detraction they had expected. But lower imports would somewhat offset that 18 bln usd difference as the firm now expects imports to add only 3 bln to second-quarter GDP, rather than the earlier expectation of 10 bln.