By Eric Morath

WASHINGTON--The U.S. trade deficit narrowed more than expected in June amid a sharp decline in imports, a development that's likely to boost second-quarter economic growth readings but raises a concern about domestic demand.

The U.S. trade deficit shrank 7% to a seasonally adjusted $41.54 billion in June from May, the Commerce Department said Wednesday. That was the fastest rate of decline since last November. The gap was smaller than $44.6 billion deficit economists surveyed by The Wall Street Journal had projected.

As a result, several economists expect the government will upgrade its measure of second-quarter economic growth later this month. Last week, the Commerce Department said gross domestic product expanded at 4.0% annual pace from April through June, with trade detracting a net 0.61 percentage point from overall gains.

BNP Paribas now says GDP expanded at a 4.5% pace in the second quarter. Barclays and RDQ Economics both peg growth a 4.3% rate.

"Export growth has been solid over the last three months, while imports have been fairly flat as falling imports of industrial materials and consumer goods offset strong increases in imports of autos and capital goods," RDQ economists John Ryding and Conrad DeQuadros wrote in a note to clients.

In June, imports fell 1.2% to $237.40 billion, the lowest level since February. Meanwhile, exports increased 0.1% to $195.86 billion, the highest level on record. The May deficit was revised to $44.66 billion from $44.39 billion.

The trade deficit has narrowed about 6% since March.

The June decline in imports was led by decreased U.S. demand for consumer goods, automobiles and parts and foreign oil. The decline could be payback for a run-up in imports earlier in the year. May nonpetroleum imports were the highest on record.

Still, the latest figure suggests importers may not be confident that U.S. consumers will continue to ramp up spending heading into the second half. That runs counter to the Commerce Department's measure of consumer spending, which increased steadily during the second quarter.

"The broad-based declines in import activity seem at odds with the narrative of improving domestic demand," said TD securities economist Millan Mulraine.

Petroleum imports continued to decline, down 3.3% in June to the lowest level since November 2010. Demand for foreign oil has subsided as U.S.production ramped up.

An uptick in exports this spring was a welcome sign for the U.S. economy. Exports rose sharply in May and held those gains in June. The pace of goods and service sold overseas had slowed late last year and earlier in 2014.

The small June gain was led by increased foreign demand for U.S. cars, consumer goods and services, which includes travel and intellectual property use.

The numbers coincide with improved growth in China this spring and a stabilizing European economy. However, unrest in the Middle East, Africa and Ukraine could all pose headwinds to global trade.

The U.S. trade ledger with Russia fell in June amid an escalating sanctions battle over the conflict in Ukraine. Exports plummeted 34% on the month to the lowest level since January last year. Imports from Russia fell nearly 10%. Russia, however, accounts for a relatively small share of total U.S. trade.

Elsewhere, the U.S. trade gapfor goods with China widened 4.9% during the first half of the year, compared with a year earlier. That is only slightly larger than the 4% overall growth in the goods-trade deficit.

The goods deficit with Canada, the largest U.S. trading partner, has widened 8.6% in the first half of this year compared with same period last year, and the deficit with the European Union expanded 15.2% in the first half. The gap with Mexico, Japan and Brazil narrowed in the first half when compared with the first six month of 2013.

Ian Talley contributed to this article.

Write to Eric Morath at and Jonathan House at

(END) Dow Jones Newswires

August 06, 2014 10:41 ET (14:41 GMT)

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