BLBG:Trade Deficit In U.S. Narrowed In May As Imports Decreased
The trade deficit in the U.S. narrowed in May as falling crude oil prices and weakening demand for consumer goods trimmed the import bill.
The gap shrank 3.8 percent to $48.7 billion, in line with the median estimate of economists surveyed by Bloomberg News, from $50.6 billion in April, Commerce Department figures showed today in Washington. Purchases from abroad fell to the lowest level in three months, while exports climbed to the second- highest on record.
Slowing global growth, which led central banks from Europe to China to cut interest rates and announce more stimulus on July 5, may mean purchases of American-made goods will cool. At the same time, a lack of U.S. hiring that helped prompt the Federal Reserve to ease monetary policy last month may temper household spending, translating into waning demand for foreign goods.
“The outlook is for an overall gradual narrowing of the trade deficit,” Ed Kashmarek, an economist at Wells Fargo Securities LLC in Minneapolis, said before the report. “U.S. demand will probably remain tepid. Exports will face slowing growth.”
The median forecast in the Bloomberg survey of 70 economists called for the deficit to shrink to $48.6 billion. Estimates ranged from $42.5 billion to $51 billion. The Commerce Department revised the trade deficit for April from an initially reported $50.1 billion.
Imports dropped 0.7 percent to $231.8 billion, the fewest since February, from $233.3 billion the prior month. Demand for crude oil plunged by $2.82 billion in May, while purchases of foreign-made consumer goods like cell phones and clothing decreased by $375 million.
Excluding Petroleum
Excluding petroleum, the trade shortfall widened to $23.8 billion from $22.5 billion in April.
There were some exceptions to the glum reading on imports. There was a $1.42 billion increase in imports of capital equipment like computers and telecommunications gear that indicates business investment in the U.S. is holding up. Auto and parts imports, which is a separate category from consumer goods, also climbed to a record.
Exports increased 0.2 percent to $183.1 billion, boosted by sales of food and capital equipment.
After eliminating the influence of prices, which are the numbers used to calculate gross domestic product, the trade deficit narrowed to $48 billion from $48.7 billion. The average for the quarter so far was slightly higher than in the first three months of the year, indicating trade will probably subtract a little bit from growth.
European Union
The trade gap with the European Union was the biggest since July 2008 as U.S. imports from the region jumped more than exports, perhaps starting to reflect the recent drop in the value of the euro. The deficit with South Korea was the biggest since November 2004.
The trade gap with China widened to $26 billion from $24.6 billion in April. Data this week indicated it may keep growing.
China’s imports rose less than anticipated in June, pushing the trade surplus to a three-year high and adding pressure on the government to support demand as the global economy slows, a report yesterday showed. Inbound shipments increased 6.3 percent from a year earlier, compared with the 11 percent median estimate in a Bloomberg survey.
The trade deficit with China may remain a thorny issue as the U.S. presses it to allow its currency, the yuan, to rise against the dollar and improve access to its market. President Barack Obama this month expanded trade complaints against China, accusing the nation of imposing unfair taxes on American vehicles, mostly from General Motors Co. and Chrysler Group LLC.
Export Outlook
The outlook for U.S. exports may dim. The Bank of England, which announced July 5 that it would restart buying bonds two months after stopping, said output will likely remain sluggish after contracting in the past two quarters. The European Central Bank the same day cut its main rate to a record low as sovereign debt turmoil threatens to drive the 17-nation euro economy into a recession.
Cooling overseas demand is hurting some American companies like Harley-Davidson Inc. (HOG) A pickup in the value of the dollar against the euro, which makes U.S.-made goods less attractive to overseas buyers, is also among reasons the biggest U.S. motorcycle maker said first-quarter sales fell 1.1 percent.
“There is an impact with regards to the events and the debt crisis and consumer confidence and potential recessionary pressures in Europe on our business there,” John Olin, chief financial officer, said on a June 26 conference call. “We are seeing the pressures of a devaluing currency” as “ everything that we send to Europe is made here” in the U.S., he said.
Dollar Climbs
The dollar climbed 6.7 percent in the 12 months to June 29 against a trade-weighted basket of currencies from its biggest trading partners, according to Fed data.
Slowing global demand has limited shares of equipment makers. The Standard & Poor’s Supercomposite Machinery Index (S15MACH), which includes companies like Caterpillar Inc. (CAT) and Deere & Co., dropped 11 percent in the two months ended June 29, while the broader S&P 500 (SPX) index fell 2.6 percent.
China, the world’s second-biggest economy, is stepping up efforts to reverse a slowdown in growth. The Asian nation on July 5 reduced benchmark interest rates for the second time in a month.
To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net
To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net
