The bottom line, from the New York Times:
The nation's trade deficit surged in June to its highest level in four months, pushed up by the rising cost of imported oil and the reluctance of foreigners to purchase more of what America produces.
The $58.8 billion deficit in the trade of goods and services was $3.4 billion above the slightly revised May level, the government reported yesterday. Imported crude oil and petroleum products accounted for roughly half of the increase...
Brad Setser thoroughly covers the oil-price impact, and the Times article suggests you may as well start building more of the same into your trade deficit forecast:
... with oil prices continuing to rise since June, the promise is for even larger trade deficits in coming reports.
Add to that a reasonably good retail sales report for July, and you would be justified in feeling that prospects look pretty dim for much improvement in the trade deficit over the near horizon.
If you are looking for a reason to be a contrarian, you might note that weak exports loomed large in the June trade number. Better economic news in the rest of the world (here , here, at The Skeptical Spectator, for example) gives some hope that the export trend will again turn upward.
And though The Capital Spectator is singing a little of the dollar blues, isn't that what the doctor ordered to bring the trade-deficit under control? Maybe, but as the Times article points out, the exchange-rate/trade-deficit connection is always tenuous:
Some economists argue that faith in exchange rates is misplaced. They say that consumption and economic growth are much stronger in the United States than in other countries and that Americans, as a result, suck in imports at a greater pace than people abroad.
"The trade deficit is much more responsive to the growth and consumption differential than to exchange rates," said David Malpass, chief economist at Bear, Stearns & Company, representing this view.
Brad Setser makes a similar point...
As Menzie Chen notes, dollar depreciation generally reduces the trade deficit by increasing the dollar value of US exports, not by reducing the dollar value of US imports. We got the surge in US exports. But the surge in US exports has not led to a fall in the trade deficit because strong US demand growth has kept US import growth rates high.
... and General Glut concurs.
Looking backward, the June report does introduce the possibility of another revision in second quarter GDP. Again from the Time article:
The trade deficit narrowed in the late winter and early spring, getting as low as $53.6 billion in March, and the Commerce Department had assumed that the June number would continue that trend. That assumption was incorporated into the department's initial estimate of economic growth for the second quarter, which ended in June.
The initial estimate was for a 3.4 percent rise in the gross domestic product. That was published in late July, before the June trade numbers were available. Now the June deficit is likely to shave one- or two-tenths of a percentage point off the G.D.P. estimate, some economists say. The reason is that the extra outlay for imports represents money diverted from spending for domestically produced goods and services. Domestic production is the source of economic growth.
An Aside: Calculated Risk also reports on the trade report, but I mention that mainly as a reason to give a periodic reminder that CT is an excellent place to keep abreast of the housing market news. Just yesterday he had four -- count 'em, four -- posts on the topic: On rising inventories in Virginia and elsewhere, on warnings from the New York Times and a UCLA professor.
UPDATE: I painted Brad Setser's comments about the effects of exchange rate changes with a brush that was a bit too broad. See Brad's clarification in the comment section below.