The drop in exports and rise in imports exacerbated a widening trade deficit. .The U.S. ran a surprisingly large trade deficit in June, raising concerns that the economic recovery is losing steam faster than previously thought. The trade gap widened 19% from a month earlier to $49.9 billion, the widest deficit since the financial crisis hit in October 2008, the Commerce Department said Wednesday. Imports jumped 3%, driven largely by strong U.S. demand for foreign-made consumer goods such as iPads and flat-screen TVs, while exports fell 1.3% as American producers sent fewer capital goods overseas. The larger-than-expected deficit, combined with a previously reported drop in factory inventories, led economists to cut their estimates of the amount of goods and services produced on U.S. soil in the second quarter. They now believe U.S. gross domestic product grew at an inflation-adjusted, annualized rate of around 1% in the quarter. The Commerce Department in late July estimated growth at 2.4% but is scheduled to revise that estimate later this month. "It just seems like the economy is losing momentum as the year progresses," said Kevin Cummins, an economist at UBS, which now estimates second-quarter growth at 1.25%. Rising imports can be a sign that consumer spending is holding up. But the fact that consumers are mostly buying relatively inexpensive, imported goods promises little fuel for boosting domestic output. More Investors Reload The Guns On Euro Trade Data Make 2nd Quarter Look Worse More from the Real Time Economics blog ."A lot of the pickup in demand will go toward imported goods rather than domestically produced goods," said economist Michael Moran of Daiwa Capital Markets. The growth in imports could renew pressure on policy makers to take a tougher stand on China's currency practices. U.S. officials have been pressing Beijing to allow a faster appreciation of the yuan, which they say has been kept artificially low to boost sales of Chinese products overseas. China has taken some initial steps to let its currency rise. The strongest growth in U.S. imports came in consumer goods, which rose 7.8%, and autos, which gained 6.6%. Computer and electronics products, a category that includes such imported items as Apple Computer Inc.'s iPad, rose $3.4 billion to $29.2 billion in June from May. Apple reported last month that it had sold 3.3 million iPads, largely in the U.S., since the product was launched in April. U.S. consumers appear to be concentrating their purchases on imported tech gadgets, rather than on furniture and other items than tend to be more domestically produced. Rick Carr, who installs home-entertainment systems in Connecticut, said he was installing two to three systems a week—a significant increase from last year. He said about 95% of the products he used, from stereo systems to televisions, were from China, Japan and Korea. Journal Communitydiscuss..“ The scariest number is the drop in exports. The nascent recovery in manufacturing was heavily predicated on exports sales. Say goodbye to that hope. Now it will be inventory building and government spending. ” .—Jake Haulk. Trade could remain a drag on the U.S. economy in the second half of the year as growth around the world remains weak. The dollar has weakened somewhat since June as U.S. economic outlook weakened, a move that in the long run could boost U.S. exports and make imports pricier. But in the short run, foreign producers tend to absorb the effect of a declining dollar through lower margins, keeping American demand for their products high. "The lags between currency changes and the economy are very long," said Daiwa's Mr. Moran. So far, "the changes in the dollar in the big scheme of things have not been very large."
