The widening trade deficit was partially responsible for the big downward revision to U.S. growth in the second quarter, but July's data indicates some good news on trade. The gap shrunk by $7.0 billion, or 14%, according to the Bureau of Economic Analysis. With additional exports and fewer imports, it's pretty good news across the board.

Let's start with the chart:

trade gap 2010-07.png

It's pretty easy to see that the trade balance (red line) wasn't quite as negative in July with a $42.8 billion deficit, compared to the $49.8 in June. The major driver was the $4.2 billion decline in imports (yellow line). Exports rose as well, by $2.8 billion to $153.3 billion.That's the highest exports tally since August 2008.

The only negative thing you can really say about this report is that movement wasn't more extreme. Even though the gap shrunk to $42.8 billion, it was still the second largest deficit since November 2008. But the $7.0 positive change in the trade balance is the largest since February 2009 and reverses the gap swelling for the prior three months straight. If this new trend continues, it will be very good news for the economic recovery.