The monthly trade gap shrank slightly, to $59.2 billion from an upwardly revised estimate of $59.4 billion in June. Both imports and exports set records in July, but exports have been rising this year at a faster pace.
"This is a strong report. If sustained, the improvement in the real deficit will add close to one percentage point to Q3 2007 real GDP growth, a continuation of the Q2 surge," said Roger Kubarych, chief US economist with UniCredit Markets and Investment Banking in New York.
The economy needs the lift from trade. Other reports predicted a steepening slide in sales and prices for homes this year that is beginning to take a toll on consumer spirits.
The National Association of Realtors cut its forecast for sales of existing homes for a seventh straight month to a 5.92 million rate this year and said prices likely will ease by 1.7% to a median price of $218,200.
Rising defaults on subprime mortgages to less credit-worthy borrowers are putting more homes on the market, driving prices down and making sellers fearful about sales prospects.
CONSUMERS FEARFUL
Consumers' fears showed up in a report from Investor's Business Daily and TechnoMetrica Market Intelligence that their economic optimism index fell 1.3 points to 48.2 in September. A reading under 50 reflects pessimism among consumers.
The positive trade figures came a week ahead of a Federal Reserve meeting on interest rates and may buttress hope that spillover from the housing and credit markets crises is "limited" and the central bank needs to lower the benchmark federal funds rate by only a quarter-percentage point, Kubarych added.
Aided by a weak US dollar and overseas economic growth, exports increased 2.7% in July to a record $137.7 billion. It was the fifth consecutive monthly gain. Exports are up 11.3% for the year-to-date compared with the same period in 2006.
"The export story, with the strong global economy impacting the US economy, has been a positive trend for the last year or two," said Scott Brown, chief economist at Raymond James & Associates in St. Petersburg, Florida.
Stock prices were in positive territory at midday. The gains were not due to the improved trade picture and were more because Fed Chairman Ben Bernanke, in a Berlin speech, said nothing to discourage hopes for an interest-rate cut when the Federal Open Market Committee meets.
Bernanke said the US current account deficit, the broadest measure of trade performance in goods and services, could not indefinitely keep rising, but said it was not hurting the US economy at this point.
US Treasury debt prices were mostly steady at lower levels after the trade data while the dollar slid after Bernanke's remarks, which traders interpreted as meaning a US rate cut was in the works.
High oil prices in July helped push US imports to a record $196.9 billion, up 1.8% from June. The average price for imported crude oil in July was $65.56 per barrel, second only to the record $66.13 set in August 2006.
Imports from the Organization of Petroleum Exporting Countries hit a record $14.8 billion in July.
EXPORT GROWTH IMPROVES
Total US imports rose 4.2% in the first seven months of 2007, compared with an 11.3% gain for exports.
The faster growth in exports over imports "suggests a slowing economy," said Subodh Kumar, chief investment strategist at Subodh Kumar & Associates in Toronto.
"But the data may add some support to the view that the economy may be slowing but it is not heading into a recession," Kumar added.
The US trade deficit with China grew 12.5% in July to $23.8 billion, the second-highest on record, despite a spate of bad publicity about the safety of Chinese goods.
The annual trade gap with China is on track to surpass last year's record $233 billion. It totaled $141.3 billion through the end of July, up 16
