The numbers: The trade deficit in goods narrowed by 6% in May due to lower oil prices and less demand among consumers for imports, perhaps a sign of a softer U.S. economy.
The trade gap in goods declined to $91.1 billion from a six-month high of $97.1 billion in April, the Census Bureau said.
The U.S. trade deficit is still running higher in the second quarter compared to the first quarter, however, and is likely to be a drag on gross domestic product based on its current trajectory. GDP is the official scorecard for the economy.
An advanced estimate of wholesale inventories, meanwhile, showed a 0.1% drop in May. Retail inventories jumped 0.8% in the month, according to an early estimate.
Higher inventories added to GDP.
Key details: Exports of U.S.-made goods slipped 0.6% to $162.8 billion in May. U.S. companies shipped less food and oil.
Imports of goods fell a steeper 2.7% to $254 billion in May. That’s the smallest reading in six months.
Big picture: The recent weakness in imports reflects less demand among Americans for goods in general. They are spending more on services such as travel and recreation. It could also be a sign of emerging weakness in the economy.
The growth in inventories has also been slowing and that’s usually a sign of softness in the economy as well. Businesses cut back on production when they expect slower sales.
Trade and inventories have had an outsize impact on GDP over the past year and it could happen again in the second quarter. Most forecasts put U.S. growth at a range of 1% to 2%.
Looking ahead: “Even with the narrowing in May, the goods trade deficit is up by over 10% since March, and trade will likely be a drag on economic growth in the second quarter,” said senior economist Abbey Omodunbi of PNC Financial Services.
Market reaction: The Dow Jones Industrial Average
DJIA,
and S&P 500
SPX,
were set to open lower in Wednesday trades.
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