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US trade deficit widens to $42 billion, but exports to Europe drop sharply

US exports fall 1% to $183.3 billion, lowered by weak auto, telecommunications and heavy machinery sales.


September 12, 2012
by The Canadian Press

WASHINGTON—The US trade deficit grew slightly in July as exports fell at a slightly faster pace than imports.

The Commerce Department said the trade deficit widened to $42 billion, 0.2% higher than June’s imbalance of $41.9 billion.

US exports fell 1% to $183.3 billion, lowered by weaker sales of autos, telecommunications equipment and heavy machinery. Imports declined 0.8% to $225.3 billion—oil imports fell 6.5%.

A wider trade deficit acts as a drag on growth because the U.S. is typically spending more on imports while taking in less from the sales of American-made goods.

Weaker growth around the globe is hurting US exports. Exports to Europe fell 11.7%. Many European countries are recession, which has cut demand for American-made goods. The region accounts for about one-fifth of U.S. exports.

The deficit with China grew 7.2% in July to $29.4 billion, the largest with any single country. That reflected a 5.6% jump in imports, which vastly outpaced a smaller 0.4% rise in US exports.

China accounts for about 7% of US exports and has the second largest economy in the world. Still, its economy has weakened this year and may be worsening. On Monday, China reported that its imports from the rest of the world shrank in August.

Exports fell in other big emerging economies. US sales of goods to Brazil fell 4.4%, while exports to India dropped 1.2%.

The overall US economy grew at an annual rate of just 1.7% in the April-June quarter, down from a 2% rate in the January-March period and 4.1% rate in the final three months of last year. Many economists believe growth will remain lacklustre for the rest of the year, partly because of diminished demand for US exports.

Weaker growth is hurting the US job market. American employers added just 96,000 jobs last month, down from an increase of 141,000 jobs in July and well below the average 226,000 jobs a month created from January through March.

Manufacturing, which has been one of the few bright spots in this recovery, lost 15,000 jobs in August.

While the overall unemployment rate fell to 8.1% from 8.3% in July, the improvement came only because many people gave up looking for work and therefore were not counted in the government’s calculations.

The weak unemployment report has lifted expectations that the Federal Reserve will approve more help for the US economy at their meeting this week.

©The Canadian Press