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US GDP growth now even higher after trade gap narrows

Shipping container trucks at the port in Long Beach, Calif.
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Shipping container trucks at the port in Long Beach, Calif.

Strong second-quarter GDP growth just got stronger and prospects for the third quarter also improved, after the Commerce Department reported the trade gap narrowed 7 percent in June on falling oil imports.

According to a CNBC/Moody's Analytics rapid update, economists upped their forecasts to a median of 4.2 percent for second-quarter growth, from the reported 4 percent level. They also raised their forecasts for the third quarter up by 0.1 percent to 3.1 percent.

"It's good news," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi. "Much of the growth—1.7 percent of the 4.0—was pure inventory building. That's temporary."

The trade deficit at $41.5 billion is the lowest since January. Imports fell 1.2 percent in June, to $237.4 billion, and petroleum imports fell to $27.4 billion, the lowest level since late 2010.

Read MoreU.S. trade gap narrows to five-month low

Rupkey said the third quarter now looks like it's growing at about 3 percent. "3 percent ... is the magical divide between sustainable growth and the level of growth that makes the Fed worry," he said.

Second-quarter growth, expected by economists to be just 3 percent or lower, was a surprise when it was reported last week. Second-quarter GDP will be announced with revisions on Aug. 28.

Exports rose by 0.1 percent to a record high of $195.9 billion, on the back of strong sales of automobiles, parts and engines.

"It looks like it will be sustained. The foreign exchange market isn't mispriced," Rupkey said. "World growth is continuing for now. ... The only worry is if Europe goes offline and that depends on geopolitical risks."

By CNBC's Patti Domm

  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

  • Senior Producer at CNBC's Breaking News Desk.