Posted by Joseph Y. Calhoun, III

The release of the trade numbers today has a number of economists rejiggering their 2nd quarter growth numbers. A smaller trade deficit implies higher GDP growth (via WSJ RTE):

Was the better-than-expected May trade report enough to finally push GDP into the black? Macroeconomic Advisers thinks so.

Prior to Friday’s data (which showed a surprising narrowing in the trade gap to $25.96 billion in May) Macroeconomic Advisers expected a 1.6% GDP decline in the second quarter, at an annual rate.

Now, the firm sees second-quarter GDP up 0.2%, a 1.8 percentage point upward revision. That would be the first positive GDP result since the second quarter of 2008.

RDQ Economics also noted the potential for a positive GDP number. “At a minimum, this suggests that the decline in real GDP should be less than current forecasts (we think that a drop of 0.5% rather than 1.5% in the second quarter is now a central forecast for GDP) and there is a significant possibility that real GDP could actually grow slightly in the second quarter, which would further add to our view that the recession ended last quarter,” economists said.

Other economists didn’t see as large an effect. Morgan Stanley revised its forecast to a 1.1% contraction from a previous forecast of a negative 1.5% print.

Goldman Sachs said the report means their forecast for a 3% GDP contraction is likely too negative. Nigel Gault of IHS Global Insight also didn’t offer an exact figure, but said the trade data indicate that any second-quarter GDP contraction will be under 2%.

One offset to the improved trade numbers is the continuing contraction in inventories. My guess is that GDP will surprise on the upside, but probably not reach a positive number. Let’s call it -1%±1.