By Marc Chandler

The larger-than-expected real U.S. trade deficit warns that economists may revise down expectations for the second-quarter U.S. GDP. The preliminary estimate is slated for release at the end of the month. Although there has been increased talk of a double dip in the U.S., the risk is that even with the adjustment in expectations, second-quarter GDP is very much in line with, and possibly even higher than, the first quarter's 2.7% pace.

Consumption was important for first-quarter GDP, accounting for a little more than 2% of the 2.7% increase. The pace has slowed in the second quarter, but may still account for 1.5-1.75 percentage points of second-quarter GDP growth. Barring a significant surprise in the June trade figures, the net export function likely was a drag on GDP. (The estimate for second-quarter GDP is due out prior to the June trade balance.)

The U.S. has not released much inventory data, but inventory accumulation is likely taking place at a slower pace than the first quarter. Capital investment may be a small positive. The government sector was a drag on first-quarter GDP as state and local government cuts more than offset the increased Federal spending.

On balance, the risk is that consensus estimates for GDP are revised down toward 2.75%-3.0%, partly based on data already received and partly in anticipation of more of the same.
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