Thursday, September 10, 2009

US trade gap widens as trade flows recover

By Veronica Smit (AFP) – 6 hours ago

WASHINGTON — The US trade deficit widened in July as trade volume rose and imports surged, government data showed Thursday in a fresh sign the economy is emerging from recession.

The Commerce Department reported the trade gap jumped to 32.0 billion dollars, from a revised 27.5 billion dollars in June and eclipsing the average analyst forecast of 27.4 billion dollars.

The trade shortfall was 16.3 percent higher than the previous month, the largest percentage increase in 10 years.

The report added to recent signs of a nascent recovery in the world's largest economy and around the world from the worst downturn in six decades.

"While wider trade deficits are normally not good news, in this case, the rise in demand for foreign consumer and business goods tells us the US economy is healing," said Joel Naroff of Naroff Economic Advisors.

Christopher Cornell of Moody's Economy.com. agreed, saying the report confirmed the economy had "turned the corner" from recent sharp declines.

"The stage is set for recovery that we all hope will take flight in the coming months," he added.

The US trade gap had fallen in May to the lowest level since November 1999 as the global economic crisis strangled trade flows. In July, the trade deficit was 47 percent below the year-ago level.

Trade volume with the rest of the world reflected a burgeoning global recovery. After falling for nine consecutive months from August 2008 to April 2009, volume jumped 3.6 percent in July, accelerating from a 2.3 percent rise in June.

Imports vaulted 4.7 percent to 159.6 billion dollars, the highest monthly increase since the Commerce Department began publishing the data in 1992.

"The impressive import numbers, if they hold up, point to a pickup in US consumer spending," said Jennifer Lee of BMO Capital Markets.

Consumer spending -- which drives two-thirds of US economic activity -- rose slightly in July as financially stressed Americans struggle to cope with a deep recession that began in December 2007.

The world's largest economy shrank at an annual rate of 1.0 percent in the second quarter after a steep 6.4 percent contraction in the first quarter. But recent data points to growth in the third quarter.

July imports rose in most categories, led by a 21.5 percent surge in imports of autos and parts.

Ian Shepherdson, chief US economist at High Frequency Economics, said the government's popular cash-for-clunkers auto scrappage program accounted for nearly half the gain in imports.

"But the underlying trend in the deficit is still downwards," he said.

Imports of industrial supplies rose by 3.9 percent, consumer goods by 5.0 percent and capital goods by 4.5 percent. Food imports were the exception, falling 0.9 percent.

The politically sensitive trade deficit with China widened sharply, as imports increased by the strongest pace since November 2008, pushing the yawning gap to 20.4 billion dollars from 18.4 billion dollars in June.

Critics accuse China, the United States's second-largest trading partner after Canada, of manipulating its yuan currency to gain an unfair trade advantage.

Exports also rose in July, to 127.6 billion dollars, a 3.2 percent increase from June that was the strongest gain since May 2008 and due in part to a 2.4 percent rise in capital goods and a 24.5 percent jump in autos and parts.

The July oil deficit rose slightly, by 600 million dollars from June, to 17.9 billion dollars.

The average price of imported crude oil climbed for the fifth month running, to 62.48 dollars a barrel, a gain of 59 percent from February.

The trade deficit with Canada rose to 2.2 billion dollars from 1.5 billion dollars in June and that with the 27-nation European Union vaulted to 8.0 billion dollars from 4.5 billion dollars.

With Japan, the deficit rose to 3.9 billion dollars from 3.7 billion dollars.

The deficit with Mexico, by contrast, shrank to 2.9 billion dollars from 3.4 billion dollars.

Copyright © 2009 AFP. All rights reserved

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