Highlights
The trade gap unexpectedly worsened in May but the really good news is a rebound in exports. Also, businesses apparently are a little more confident about demand as nonoil imports picked back up. The overall U.S. trade deficit expanded to $42.3 billion from $40.3 billion in April. The latest trade gap was worse than the consensus forecast for a $39.0 billion shortfall. Exports rebounded 2.4 percent while imports bounced back 2.9 percent. Nonoil imports jumped 6.1 percent, following a 0.5 percent dip in April.

The worsening in the deficit was in the nonpetroleum portion. The nonpetroleum deficit widened to $32.3 billion in May from $27.8 billion the prior month. The petroleum goods gap, however, narrowed to $21.5 billion from $24.1 billion in April.

By end-use categories, the gain in goods exports was led by a $2.0 billion boost in capital goods excluding autos. Exports of industrial supplies, consumer goods, and autos also posted increases. The foods, feeds & beverages category edged down incrementally but essentially was unchanged.

The boost in imports was broad based outside of oil. Consumer goods jumped $2.6 billion; autos were up $2.2 billion; capital goods ex autos advanced $2.0 billion; and foods, feeds & beverages edged up $0.2 billion. Industrial supplies-which include oil-fell $2.2 billion.

Overall, the May trade report is quite favorable even though the gap worsened. Manufacturers will be happy that exports are up across the board. And businesses are importing to boost both capital spending and inventories for consumers to purchase. Today's report is a vote of confidence that the recovery is still on.

Markets had little reaction as the key focus is on corporate earnings-notably the beating of expectations by Alcoa after close yesterday. Equity futures remain up significantly.

Market Consensus before announcement
The U.S. international trade gap widened to $40.3 billion in April from $40.0 billion the previous month. For the latest month, exports slipped 0.7 percent while imports decreased 0.4 percent. By end-use categories, goods exports' weakness was led by a decline in consumer goods while softness in goods imports was in the same category. However, the bright spot in imports was a jump in capital goods excluding autos. Businesses appear to see demand strong enough to expand or upgrade capacity. Looking ahead, the question is whether businesses in the U.S. and abroad see consumer demand and investment strengthening or slowing. Leading into May, concern over European sovereign debt problems remained high while the U.S. consumer still looked relatively healthy ahead of May retail sales. Monthly data are volatile but this suggests imports may be relatively strong compared to exports for May.

2010 Release Schedule

Released On: 1/12 2/10 3/11 4/13 5/12 6/10 7/13 8/11 9/9 10/14 11/10 12/10 Release For: Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct