Tags: US | Economy

Trade Gap Likely Points to Slower Economic Growth

Wednesday, 11 Aug 2010 01:16 PM

 

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A decline in exports and a sharp rise in imports pushed the U.S. trade deficit in June to its widest point since October 2008, raising new concerns about the weakening economic recovery.

The $49.9 billion gap is worrying economists, who fear it means the U.S. economy grew at half the rate in the April-to-June quarter than first estimated by the government last month.

The trade deficit jumped 18.8 percent in June compared to May, the Commerce Department reported Wednesday.

While the rise in imports suggests the U.S. economy is growing, the drop in exports is a troubling sign for U.S. manufacturers who rely on overseas markets.

U.S. exports slipped 1.3 percent to $150.5 billion. Sales of American farm products, computers and telecommunications equipment all declined. Imports rose 3 percent to $200.3 billion. The surge in consumer imports reflected higher shipments of a wide variety of goods from cell phones and household appliances to televisions and clothing.

Nigel Gault, an economist at IHS Global Insight, said the June deficit figure means that the government will trim its estimate of overall economic growth from an already sub-par 2.4 percent to 1.2 percent when it releases a revised estimate on Aug. 27.

He said that placed the economy "on even shakier ground" and underscored why the Federal Reserve announced on Tuesday that it would supply additional support for economic growth.

"The slowing in exports will only fan fears of a faltering U.S. recovery," said Sal Guatieri, an economist at BMO Capital Markets.

Stocks tumbled Wednesday as investors around the world worried about the state of the U.S. economy. The Dow Jones industrial average fell more than 245 points in midday trading.

The deficit in goods and services, the difference between what America sells abroad and what the country imports, rose to the highest level in 20 months, when it stood at $59.4 billion.

Through the first six months of this year, the deficit is running at an annual rate of $494.9 billion. That is up 32 percent from the $374.9 billion deficit for all of 2009 — a year when the deficit was cut nearly in half as a result of the recession.

Economists had expected the deficit to widen this year as an improving domestic economy lifted U.S. demand for foreign consumer goods and industrial products but they had hoped that some of the drag on growth would be offset by a solid rebound in U.S. exports.

American manufacturers have enjoyed growing demand for their products in Asia. But they have faced weakness in Europe, where the economic rebound has been subdued by a debt crisis that erupted in the spring. Exports of electric generators, civilian aircraft and machine tools did buck the downward trend in June to post increases.

The prospects for U.S. exports have been hurt by a rise in value for the dollar against some foreign currencies. That includes the euro. And it is also affected by China's refusal to heed the Obama administration's demands that it allow its currency to rise in value against the dollar. A weaker dollar against the yuan would boost the competitiveness of U.S. products in China while making Chinese goods more expensive in the United States.

For June, the U.S. trade deficit with China rose 17.4 percent to $26.2 billion. Through the first six months of this year it is running 15.9 percent higher than the same period a year ago. That is certain to increase pressure on Congress to pass legislation that would impose stiff economic sanctions on China unless it moves more quickly to allow its currency to rise in value.

The deficit with the European Union increased by 25.9 percent to $7.8 billion in June while the deficit with Japan narrowed by 3.5 percent to $5 billion. The deficit with Canada, America's biggest trading partner, increased 14.4 percent to $2.6 billion in June.

America's foreign oil bill edged down 3.3 percent to $26.7 billion in June as the average price for a barrel of imported crude oil dropped to $72.44, down from $76.93 in May. Oil imports will likely head higher in coming months given the fact that the average price for crude oil is now hovering around $80 per barrel.

© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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