U.S. Trade Gap Unexpectedly Widens

U.S. Trade Gap Unexpectedly Widens to $49.9 Billion (Update3)

By Bob Willis

Aug. 11 (Bloomberg) -- The trade deficit in the U.S. unexpectedly widened in June to the highest level since October 2008 as consumer goods imports rose to a record and exports declined.

The gap expanded $7.9 billion, the most since record- keeping began in 1992, to $49.9 billion in June, Commerce Department figures showed today in Washington. A $42.1 billion deficit was projected by economists, according to the median forecast in a Bloomberg News survey. Imports climbed 3 percent, while exports dropped 1.3 percent, the most since April 2009.

Increased business investment and consumers who are still spending are helping sustain the U.S. appetite for merchandise made abroad. At the same time, growth in emerging economies such as China may cool, limiting shipments abroad that have benefited companies such as Caterpillar Inc. The figures signal trade subtracted more from second-quarter gross domestic product than previously estimated.

“Clearly not all of these imports of consumer goods are being purchased or consumed and some of it is going into inventories,” said Aaron Smith, a senior economist at Moody’s Economy.com in West Chester, Pennsylvania. “It’s consistent with slower global growth. We’re going to get less of a boost from exports in the second half versus the first half.”

Estimates of 73 economists surveyed by Bloomberg ranged from deficits of $38 billion to $50 billion. The gap increased 19 percent from a May shortfall of $42 billion.

Stocks Fall

Stocks fell and Treasury securities rose after the report. The Standard & Poor’s 500 Index dropped 2.2 percent to 1,096.94 at 10:39 a.m. in New York. The 10-year Treasury note gained, pushing down the yield to 2.70 percent from 2.76 percent late yesterday. The yen held gains after earlier strengthening to 84.73 per dollar, the strongest since July 1995.

The June balance adjusted for inflation, which is the figure used to calculate gross domestic product, increased to $54.1 billion, the highest since February 2008, from $46 billion in May. The gap was larger than the average $42.3 billion a month in the first quarter.

Economists at UBS Securities in New York said the Commerce Department, in estimating growth from April through June at a 2.4 percent annual rate, assumed a $3.2 billion widening of the adjusted trade deficit in June. Exports minus imports subtracted 2.8 percentage points from growth during the three months, the most since 1982, the Commerce Department said July 30.

Exports, Imports

Exports from the U.S. decreased to $150.5 billion from $152.4 billion, reflecting fewer shipments abroad of semiconductors, computers and steelmaking materials. Imports increased in June to $200.3 billion from $194.4 billion, led by telecommunications equipment, automobiles and consumer goods such as pharmaceutical preparations, televisions and furniture.

The quantity of imported petroleum increased, while the price per barrel fell to $72.44 from $76.93 the prior month, according to today’s report.

Sales of U.S.-made goods may get a boost from a drop in the value of the dollar. The dollar has declined 5 percent against a trade-weighted basket of currencies since a high this year on May 20. It’s down almost 1 percent in 2010.

Federal Reserve policy makers yesterday announced more steps to bolster an economy that it said is starting to weaken. The Fed’s Open Market Committee said in a statement that “the pace of economic recovery is likely to be more modest in the near term than had been anticipated.”

Fed Action

The Fed said it will reinvest holdings of agency debt and mortgage-backed securities, the first attempt by the central bank since March 2009 to keep the economy from relapsing into recession.

Business investment is one of the U.S. economy’s bright spots. Purchases of equipment and software in the second quarter rose at a 22 percent annual rate, the biggest gain since 1997, according to figures from the Commerce Department. Consumer spending, which accounts for 70 percent of the economy, grew at a 1.6 percent pace from April through June after a 1.9 percent rate in the previous three months.

The outlook for exports may be tempered. European default concerns beginning in April sparked fears of financial contagion, while China and India, the world’s two fastest- growing major economies, are taking steps to prevent their expansions from overheating. Growth in Canada, the U.S.’s largest trading partner, is slowing.

Deficit With China

The U.S. shortfall with China widened to $26.2 billion in June, the highest since October 2008, as imports from the Asian nation jumped, the Commerce Department said.

In a sign it was having some success in slowing domestic spending, China’s July trade surplus surged 44 percent to $28 billion, an 18-month high, as exports rose to a record and import gains slowed, the country’s customs bureau reported this week in Beijing.

U.S. Treasury Secretary Timothy F. Geithner said Aug. 4 he will “watch closely” how much the Chinese yuan is allowed to appreciate, after saying the previous month the currency was undervalued.

President Barack Obama has made export growth a key economic policy initiative. Obama is seeking to double U.S. exports during the next five years to about $3.1 trillion by 2015.

Obama and Trade

Obama on Aug. 5 announced a $250 million loan guarantee to finance Ford Motor Co. exports. It will finance $3.1 billion of shipments to Canada and Mexico of more than 200,000 U.S.-made vehicles, including Explorers, an administration official said.

Caterpillar, the world’s largest maker of earthmoving equipment, is among companies that have benefited from growth in emerging economies. Its sales to Latin America rose 116 percent to $621 million in the second quarter from a year earlier, the company announced on July 22.

“We’re seeing certainly a mixed story around the world, but for the most part positive,” Douglas Oberhelman, chief executive officer of Caterpillar said in a July 22 interview on Bloomberg Television. “We’re seeing virtually every strong- growth developing country, whether it’s Brazil, China or even India, growing pretty nicely.”