The U.S. trade deficit unexpectedly narrowed in April reflecting a plunge in auto and oil imports combined with record exports. The gap shrank 6.7 percent to $43.7 billion, the lowest since December, Commerce Department figures showed today in Washington. Purchases of goods from Japan dropped by a record $3 billion in the aftermath of the earthquake and tsunami. A 9.9 percent drop in the dollar over the past 12 months will probably keep boosting overseas sales at manufacturers like Dow Chemical Co. (DOW) The improving trade picture may help offset slowdowns in consumer spending and auto production, preventing the world’s largest economy from cooling further. “This a positive for the second quarter,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut, who projected the gap would drop to $44.3 billion. “The trade balance in the second quarter will mostly reflect the supply-chain disruptions” from Japan. Claims for jobless benefits unexpectedly rose last week, a sign that the labor market is struggling to gain traction, figures from the Labor Department also showed today. Applications for unemployment insurance benefits increased by 1,000 to 427,000 in the week ended June 4. Economists surveyed by Bloomberg News projected a drop to 419,000, according to the median forecast. Stocks, Dollar Rally Stock-index futures held earlier gains after the reports and the dollar rose against the yen. The contract on the Standard & Poor’s 500 Index maturing this month rose 0.3 percent to 1,280.6 at 8:49 a.m. in New York. The dollar was worth 80.06 yen, up from 79.89 yen late yesterday. The trade gap was projected to widen to $48.8 billion from an initially reported $48.2 billion in March, according to the median forecast of 75 economists surveyed. Estimates ranged from deficits of $42 billion to $52 billion. The Commerce Department revised the March shortfall down to $46.8 billion. With today’s report, the Commerce Department also issued revisions dating back to 1999. For 2010, the trade gap was revised up by $4.3 billion, or 0.9 percent, to $500 billion. After eliminating the influence of prices, which renders the figures used to calculate gross domestic product, the trade deficit in April fell to $44.2 billion, the lowest since February 2010, from $49.7 billion. The number was smaller than the $50.4 billion deficit averaged in the first quarter, indicating trade will likely add to growth this quarter. Boosting Growth “In the second quarter, trade should be a plus for growth,” Nigel Gault, chief U.S. economist at IHS Global Insight Inc. in Lexington, Massachusetts, said before the report. “Export growth still looks very strong, and to the extent that our own economy is slowing, import demand won’t be growing as fast.” Exports increased 1.3 percent to $175.6 billion, boosted by sales of fuel oil, petroleum products and computers. The drop in the value of the dollar against a trade-weighted basket of currencies from the country’s biggest trading partners may be one reason for continued optimism on sales overseas. “The low dollar means we can export, so we are actually fundamentally growing globally from the U.S.,” Andrew Liveris, president and chief executive officer at Dow Chemical, said during a June 2 conference call. “We see strong growth drivers in emerging regions. China is the locus of growth.” Auto, Oil Imports Imports dropped 0.4 percent to $219.2 billion from $220.2 billion in March. Demand for foreign-made automobiles and parts dropped by $2.82 billion to $19.1 billion, and crude oil imports fell by $2.42 billion as prices rose. The disaster in Japan curtailed imports. Supply disruptions caused by the earthquake and tsunami will cut vehicle production in America and Japanese exports to the U.S. by a combined 300,000 to 400,000 units in the second quarter, Ellen Hughes-Cromwick, chief economist at Dearborn, Michigan-based Ford Motor Co., said during a June 1 conference call with analysts. The average price of a barrel of crude climbed to $103.18, the highest since September 2008. The U.S. imported 8.41 million barrels per day on average in April, the fewest since October. The rise in fuel prices and the disaster in Japan have taken a toll on the U.S. economy, recent reports showed. Consumer spending grew less than forecast in April, according to Commerce Department data. Manufacturing expanded in May at the slowest pace in more than a year, the Institute for Supply Management said last week. Less Hiring Employers in May also added the fewest number of workers in eight months and the jobless rate unexpectedly increased to 9.1 percent, further raising the risk of an economic slowdown, Labor Department figures showed June 3. Federal Reserve Chairman Ben S. Bernanke is among policy makers projecting the softening in growth will be temporary. Bernanke this week said the economy is likely to pick up as fuel prices moderate and disruptions of parts supplies ease as factories in Japan recover. The trade gap with China increased to $21.6 from $18.1 billion. Exports to France climbed to the highest level since May 2008 and demand for American goods from countries in the Organization of Petroleum Exporting Countries increased to the highest level since December 2008. Dow, based in Midland, Michigan, also expects “a short-term boost in Japan as that country rebuilds from its recent tragic natural disaster,” Liveris said To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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