U.S. Economy: May Trade Deficit Narrows to $55.3 Bln (Update2)
U.S. Economy: May Trade Deficit Narrows to $55.3 Bln
July 13 (Bloomberg) -- Record exports and a decline in oil prices helped the U.S. trade gap unexpectedly narrow to $55.3 billion in May, suggesting that trade gave a boost to quarterly economic growth for the first time since 2003.
The imbalance in goods and services trade dropped 2.8 percent from $56.9 billion in April, the Commerce Department said today in Washington. The median forecast in a Bloomberg News survey of economists called for no change from April. The dollar gained against the euro after today's report.
The narrowing trade gap may add to U.S. growth for the first time since the third quarter of 2003, economists said. How much gross domestic product benefits may be determined by the effect of oil prices, which rebounded since May and reached a record last week, on June's trade figures.
``It's good news, clearly,'' said Richard DeKaser, chief economist at National City Corp. in Cleveland, who said April and May figures suggest a narrower trade gap added a half-percentage point to second-quarter growth. ``However, it's exaggerated because we had a large drop in oil prices. I think we'll see a bump up in the trade deficit when we get the June numbers.''
Import prices rose 1 percent in June, led by crude oil prices, a separate Labor Department report said today. Excluding oil, prices fell 0.4 percent, the most since April 2003.
The May deficit compares with a record $60.1 billion in February and exceeds the average $51.5 billion for 2004, when the annual trade gap was the largest ever. The deficit reached $284 billion in the year's first five months, compared with $236 billion in the year-earlier period. The surplus for June was $22.4 billion, compared with $19.1 billion a year earlier, the Treasury Department said today.
Exports Rise
Exports rose 0.2 percent in May to $106.9 billion, a third straight record, led by food products, industrial supplies and consumer goods. Purchase, New York-based PepsiCo Inc. yesterday said second-quarter earnings rose 13 percent, aided by surging demand for drinks such as Gatorade in Europe and Asia.
The deficit with China, whose currency peg to the dollar has led to threats of tariffs from the U.S. Congress, widened to $15.8 billion, the third largest on record. The gap accounted for about a quarter of the entire U.S. deficit during the month.
So far this year, the deficit with China is $72.5 billion, up a third from January-May 2004. The goods deficit with China was a record $162 billion in 2004.
The dollar strengthened against the euro, which traded at $1.2093 as of 2:00 p.m. in New York, compared with $1.224 yesterday. The dollar traded at 112.08 yen, compared with 110.8.
``The U.S. has big trade deficits and will continue to have big trade deficits,'' said Lara Rhame, a currency strategist at Credit Suisse First Boston in New York. ``That's not necessarily bad news. Our economy has been growing incredibly strongly despite the large trade deficit.''
Fed Outlook, U.S. Budget
Anthony Santomero, president of the Federal Reserve Bank of Philadelphia, said today the U.S. Federal Reserve will probably continue raising interest rates at a ``measured pace'' to head off inflation. ``The U.S. economy is embarked upon a period of sustained expansion'' and will grow at least 3.5 percent this year, he said in a speech to bankers in Chicago.
Job and income growth will help narrow the U.S. budget deficit this fiscal year to $333 billion this fiscal year, compared with a previous estimate of $427 billion, the White House Office of Management and Budget said today.
Oil Imports
Imports slowed as oil prices fell in May and companies ordered fewer materials from overseas to reduce inventories, which had ballooned in the first quarter. U.S. imports from all countries fell 0.9 percent to $162.2 billion, led by a $2.4 billion decline for oil, natural gas, steel and other industrial supplies. Imports of capital goods also fell.
The value of U.S. oil imports fell in May to $13.7 billion from $14 billion the previous month, even as the volume increased. The price of a barrel of oil was $43.08, second only to the $44.76 in April.
Imports rose for consumer goods, autos and parts.
U.S. exports for foods, feeds and beverages rose 11 percent to $5.6 billion. Exports of industrial supplies rose 1.2 percent. Exports of consumer goods rose 4.7 percent to $9.7 billion. Shipments of capital goods to foreign customers fell 3 percent, led by a decline in commercial aircraft.
Wider Deficit
Rebounding oil prices and a dollar that has strengthened in recent weeks, along with the prospect for a rebound in manufacturers' orders, may point to a wider trade gap in the second half.
The dollar gained almost 3.6 percent against a basket of 30 other currencies in the first six months of 2005, its biggest first-half increase in five years. That may hurt U.S. companies in foreign markets by making their exports more expensive.
Oracle Corp. said July 1 it expects the dollar's rise to cut fiscal 2006 sales 2 percent. The company, based in Redwood City, California, is the world's third-largest software maker, behind Microsoft Corp. and International Business Machines Corp.
Even so, expanding economies in Asia may help underpin export growth in the months ahead. Derek Williams, executive vice president of Oracle's Asia Pacific operations, cited India and China as ``incredible growth engines.''
``The opportunities for growth are pretty much there,'' Williams said July 11 in an interview. ``And for Oracle it must be at some point going to be one of our top three countries. The only question is when.''
Import Prices
Today's 0.4 percent decline in June prices for imported goods other than petroleum was the biggest drop in more than two years, suggesting overseas companies are having little success passing on higher energy costs.
Costs of imported automobiles, other consumer goods and industrial materials excluding crude oil either declined or were unchanged last month, the report showed.
Imported ``inflation looks pretty subdued,'' said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York. ``It does put some pressure on U.S. producers because if import prices are subdued, it gives them less leeway'' to raise their own prices, he said.
To contact the reporters on this story: Joe Richter in Washington jrichter@bloomberg.net
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