US trade deficit falls to $48.7 billion as exports rise

Deficit reduction helped by cheaper oil that lowered imports and more exports to Europe and China.

July 11, 2012
by The Canadian Press

WASHINGTON: The US trade deficit narrowed in May from April, helped by cheaper oil that lowered imports and an increase in American exports to Europe and China.

But economists cautioned that the global economy has weakened since then. And they noted that the decline in the deficit wasn’t enough to alter their growth forecasts for the April-June quarter.

The Commerce Department said Wednesday that the trade deficit fell 3.8% to $48.7 billion in May, down from $50.6 billion in April.

Exports rose 0.2% to $183.1 billion. The increase reflected stronger sales of telecommunications equipment and heavy machinery. Exports to the 27-nation European Union rose 2.6% in May from April.

Imports dropped 0.7% to $231.8 billion. The amount the US spent on imported oil fell to the lowest level in 15 months.

A narrower trade gap acts as less of a drag on growth. It means the US is spending less on foreign-made products, while taking in more from sales of American-made goods.

“It is always nice to see the trade deficit narrow but I am not sure this will continue,” said Joel Naroff, chief economist for Naroff Economic Advisors. “The sharp decline in oil prices has faded and the economies in Europe and Asia have weakened further.”

A separate Commerce report showed US wholesale companies added modestly to their stockpiles in May. But sales at the wholesale level dropped by the largest amount in three years. That could prompt companies to restock more slowly in the coming months, which could weigh on growth later this year.

US manufacturing has weakened this year, hurt by Europe’s financial crisis and slower growth in China. At the same time, sluggish US job growth and meagre pay increases have made American consumers more cautious about spending. Consumer spending drives roughly 70% of economic activity.

Paul Ashworth, chief US economist at Capital Economics, doesn’t see growth picking up from the January-March’s tepid 1.9% annual pace. He’s predicting annual growth of between 1.5% and 2% in the April-June quarter.

Lower oil prices were the main reason the trade deficit narrowed in May, he said. Further price declines should narrow deficits further in June and July.

US export growth has slowed and will slow further “given the sharp slowdown in economic growth in Europe and Asia,” Ashworth said. He predicted that trade would be a drag on growth in the second half of this year “and probably through 2013 as well.”

The US deficit with the EU widened 21% in May to $10.5 billion because imports from Europe increased 7.8%.

America’s trade deficit with China increased to $26 billion in May. US exports to China rose 5.2%but imports rose by a faster 5.8%. The deficit with China is the largest with any country and is on pace to break last year’s all-time high.

Other reports suggest exports have slowed since May.

A survey by the Institute for Supply Management, a trade group of purchasing managers, said US manufacturing shrank in June for the first time in nearly three years. The survey noted that exports declined and new orders plunged.

Economic growth of 1.9% is not enough to significantly lower the unemployment rate, which stayed at 8.2% in June.

©The Canadian Press