The May Trade Deficit totaled $26b, $4b less than expected and down from $28.8b which was revised lower by $400mm. The improvement was due to both a rise in exports and a reduction in imports. Imports have now fallen for a 10th straight month and are down 35% from its record high in July ’08. Exports are down by 25% from its high. This thus highlights the main reason for the improvement in the trade imbalance, the US consumer buying less. With the trend expected to continue for a few years to come as the savings rate rises and deleveraging continues, the US has to make goods that the rest of the world wants in order to maintain solid export growth. The export gain for May was led by a rise in shipments of capital goods, industrial supplies, consumer goods and food and beverage. Bottom line, the better than expected deficit will lead to a rise in Q2 GDP estimates by a few tenths.
