ReutersWASHINGTON (Reuters) — The U.S. trade deficit jumped in May and trade tensions between the United States and China helped drive activity in the services sector to a two-year low in June, further signs that economic growth slowed sharply in the second quarter.
The economy’s dimming outlook was also underscored by other data on Wednesday showing private employers adding far fewer-than-expected jobs to their payrolls last month. New orders for manufactured goods dropped in May for a second straight month.
The reports followed recent weak housing and business investment data, as well as moderate consumer spending. Business and consumer confidence have dipped.
The slowdown in activity as last year’s massive stimulus from tax cuts and more government spending fades could prompt the Federal Reserve to cut interest rates this month.
The U.S. central bank last month signaled it could ease monetary policy as early as its July 30-31 meeting, citing rising risks to the economy from the trade war between Washington and Beijing, and low inflation. The International Monetary Fund has lowered global growth estimates because of reduced trade flows as a result of the trade fights.
“One wonders how long Washington will continue to claim they are helping the U.S. economy,” said Chris Rupkey, chief economist at MUFG in New York. “One of the factors behind the economy’s fall in the Great Depression was protectionism and trade wars, and it will be a miracle if the world economy can avoid another downturn this time.”
The trade deficit rose 8.4 percent to $55.5 billion as a surge in imports overshadowed a broad increase in exports, the Commerce Department said. Economists polled by Reuters had forecast the trade gap widening to $54.0 billion in May.
The goods trade deficit with China, a focus of President Donald Trump’s “America First” agenda, increased 12.2 percent to $30.2 billion. Trump imposed additional import tariffs on Chinese goods, after a breakdown in negotiations, prompting Beijing to retaliate. Economists say the expectation of additional duties likely boosted imports from China, which jumped 12.8 percent in May.
Trump and Chinese President Xi Jinping last week agreed to a trade truce and a return to talks. White House trade adviser Peter Navarro said on Tuesday talks were heading in the right direction, but it would take time to get the right deal made.
The U.S.-China trade tensions have caused wild swings in the trade deficit, with exporters and importers trying to stay ahead of the tariff fight between the two economic giants. Trump on Wednesday accused China and Europe of “playing big currency manipulation game and pumping money into their system in order to compete with USA.”
“We still think it is slightly more likely than not that the trade dispute with China will ultimately escalate further,” said Andrew Hunter, a senior U.S. economist at Capital Economics in London. “Trade is likely to remain a modest drag on growth over the second half of this year, which we expect to compound a sharp slowdown in domestic demand growth.”Speech