Trade Gap Shrinks Despite Oil Price Surge

WASHINGTON(Reuters) – The U.S. trade deficit shrank unexpectedly in June as theweak U.S. dollar helped push exports higher and overpowered record highprices 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 Reutersbefore 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 forimports.

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

A preliminary estimate released last month showed U.S. grossdomestic product expanded at a 1.9 percent annual rate in the secondquarter, but would have shrunk at a 0.5 percent pace without a bigcontribution from trade.

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

U.S. Commerce Secretary Carlos Gutierrez agreed it could prompt thedepartment to raise second-quarter economic growth from its initialestimate of 1.9 percent.

"It’s a very strong month for exports," Gutierrez said. "The growthis 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 inJune, while U.S. Treasury prices held steady at higher levels and stockfutures were mostly flat.

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

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

The firmer U.S. dollar and lower oil prices are reducing inflationrisks, making it likely the Federal Reserve will continue to resistraising interest rates, said Joel Naroff, president and chief economistat 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 againstthe euro, amid signs the U.S. economic slowdown is spreading to Europeand beyond.

But in June, the cheap greenback helped U.S. exports set records inseveral categories including overall goods, overall services,petroleum, food, feeds and beverages, industrial supplies andmaterials, 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 thatexports will continue to grow, but at what rate I’m not willing topredict," Gutierrez said.

In contrast to the broad-based export rise, most of the import gaincame from one area, petroleum, although imports of services also hit arecord.

In addition, a pair of private industry reports suggested the boostthat government economic stimulus checks gave to consumer spending maybe waning.

Consumer spending excluding cars rose 1.0 percent in July on aseasonally adjusted basis, after a 1.1 percent gain in June, saidSpendingPulse, the retail data service of MasterCard Advisors, an armof 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 August9, despite the start of the annual back-to-school shopping season,according a report from the International Council of Shopping Centersand UBS Securities.

The monthly crude oil import bill was a record $34.9 billion, as theaverage 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 alsoa record, as were imports from Saudi Arabia and other members of theOrganization of Petroleum Exporting Countries. The U.S. deficit withOPEC was a record $18.1 billion.

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

The closely watched U.S. trade deficit with China rose 1.8 percentin June to $21.4 billion, and through the first six months of the yeartotaled $117.5 billion — just fractionally higher than in the sameperiod last year.

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