U.S. Trade Deficit Widens in May

The U.S. trade deficit widened to $41.1 billion in May from $37.4 billion in April. Nominal exports edged down 0.2% m/m, with both goods exports and services falling. Imports rose 1.6% in the month. The pullback in goods exports was widespread while the gain in imports, on the other hand, was largely in consumer goods, not surprising given continued strong domestic fundamentals.

We expect net-trade to be a negligible drag on GDP in the second quarter, with substantial strength in April exports likely enough to lift export growth above import growth in the quarter. The global economy will continue to be a drag on U.S. growth, even more so in a post-Brexit environment. As long as uncertainty remains elevated, capital inflow to the U.S. will continue and this will keep the dollar value high.

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