Trade Gap Shrinks Despite Oil Price Surge

By Reuters -  |  Posted 2008-08-12 Print this article Print

The U.S. trade sector has been one of the bright spots for an economy struggling with a deep housing downturn and credit crunch, and analysts said the data suggested growth in the second quarter was stronger than previously thought.

WASHINGTON (Reuters) - The U.S. trade deficit shrank unexpectedly in June as the weak U.S. dollar helped push exports higher and overpowered record high prices for imported oil, a Commerce Department report showed on Tuesday.

The trade gap totaled $56.8 billion, down from a revised estimate of $59.2 billion in May. The monthly tally was also much lower than the $61.5 billion midpoint estimate of 73 analysts surveyed by Reuters before the report.

Both exports and imports of goods and services set records in June, but exports rose by 4.0 percent compared to a 1.8 percent gain for imports.

The U.S. trade sector has been one of the bright spots for an economy struggling with a deep housing downturn and credit crunch, and analysts said the data suggested growth in the second quarter was stronger than previously thought.

A preliminary estimate released last month showed U.S. gross domestic product expanded at a 1.9 percent annual rate in the second quarter, but would have shrunk at a 0.5 percent pace without a big contribution from trade.

The June trade numbers are "slightly favorable for second-quarter GDP," said Gary Thayer, senior economist at Wachovia Securities in St. Louis. "Imports will be a little less of a drag on economic growth than appeared earlier. But weaker imports still reflect the overall weakness in the U.S. economy."

U.S. Commerce Secretary Carlos Gutierrez agreed it could prompt the department to raise second-quarter economic growth from its initial estimate of 1.9 percent.

"It's a very strong month for exports," Gutierrez said. "The growth is coming from Brazil, it's coming from Russia, it's coming from India, it's coming from the Middle East ... It's very broad-based," he said.

The dollar rose against the euro on news the trade gap narrowed in June, while U.S. Treasury prices held steady at higher levels and stock futures were mostly flat.

The smaller-than-expected trade gap "will support growth going into the third quarter," said Kurt Karl, chief U.S. economist at Swiss Re in New York.

But the narrowing of the trade deficit also is one more piece of evidence the U.S. economy may be in a recession because it shows consumers are buying less, he said.

The firmer U.S. dollar and lower oil prices are reducing inflation risks, making it likely the Federal Reserve will continue to resist raising interest rates, said Joel Naroff, president and chief economist at Naroff Economic Advisors.

The deficit totaled $351.4 billion for the first six months of the year, down from $358.4 billion in the same period in 2007.

In recent days, the dollar has surged to a six-month high against the euro, amid signs the U.S. economic slowdown is spreading to Europe and beyond.

But in June, the cheap greenback helped U.S. exports set records in several categories including overall goods, overall services, petroleum, food, feeds and beverages, industrial supplies and materials, capital goods and consumer goods.

U.S. exports to Mexico, the European Union and South and Central America also set records in June.

Even with the recent rise in the dollar, "I remain optimistic that exports will continue to grow, but at what rate I'm not willing to predict," Gutierrez said.

In contrast to the broad-based export rise, most of the import gain came from one area, petroleum, although imports of services also hit a record.

In addition, a pair of private industry reports suggested the boost that government economic stimulus checks gave to consumer spending may be waning.

Consumer spending excluding cars rose 1.0 percent in July on a seasonally adjusted basis, after a 1.1 percent gain in June, said SpendingPulse, the retail data service of MasterCard Advisors, an arm of MasterCard Worldwide.

However, much of the gain reflected high gasoline prices. Excluding both cars and gasoline, sales fell 0.7 percent in July.

Weekly chain store sales fell 1.1 percent in the week ended August 9, despite the start of the annual back-to-school shopping season, according a report from the International Council of Shopping Centers and UBS Securities.

The monthly crude oil import bill was a record $34.9 billion, as the average price for imported oil jumped to a record $117.13 per barrel.

The month-to-month rise in oil prices of $10.85 per barrel was also a record, as were imports from Saudi Arabia and other members of the Organization of Petroleum Exporting Countries. The U.S. deficit with OPEC was a record $18.1 billion.

U.S. crude oil prices continued to rise sharply in July to a record above $147, but have retreated this week, with U.S. light sweet crude oil back below $115 on signs of weaker global demand and under pressure from the rising U.S. dollar.

The closely watched U.S. trade deficit with China rose 1.8 percent in June to $21.4 billion, and through the first six months of the year totaled $117.5 billion -- just fractionally higher than in the same period last year.

(Additional reporting by Ellen Freilich and Richard Leong in New York; Editing by Daniel Trotta)


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