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U.S. Trade Gap Narrowed in May
Friday, 10 July 2009 00:00

WASHINGTON—The U.S. trade deficit unexpectedly narrowed in May to its lowest level since November 1999, as exports grew and imports fell despite rising oil prices.

The U.S. deficit in international trade of goods and services contracted 9.8% to $25.96 billion from a downwardly revised $28.79 billion in April, the Commerce Department said Friday. The April trade gap was originally reported as $29.16 billion.

The May deficit was much smaller than Wall Street expectations. Economists surveyed by Dow Jones Newswires had estimated a $30 billion shortfall.

In a separate report, the Labor Department reported that U.S. import prices jumped last month, matching their largest increase in nearly two decades, as soaring oil prices and a weaker U.S. dollar further lowered the odds of a protracted period of economy-wide price declines known as deflation. Still, with oil prices already in retreat this month to under $60 per barrel and U.S. wages flat-lining, inflation is unlikely to take root. The slowing U.S. economy and ebbing demand for overseas good began to eat away at the large trade gap early in the year, though a resurgence in oil prices had pushed it back up in recent months.

Still, trade has been one of the few positive notes in an otherwise downbeat U.S. economy, contributing 2.39 percentage points to first-quarter gross domestic product to partially offset a drop-off in housing and business spending. Overall GDP contracted 5.5% in the first quarter.

The real, or inflation-adjusted, trade deficit—which economists use to measure the impact on the overall economy—narrowed to $36.18 billion in May from $40.06 billion the previous month.

U.S. exports posted their biggest gain since July 2008, rising 1.6% to $123.31 billion from $121.41 billion. Imports decreased in May to the lowest level since July 2004, however, falling 0.6% to $149.27 billion from $150.20 billion.

The U.S. bill for crude oil imports fell to $13.41 billion from $13.63 billion the month before despite a continued rise in oil prices. The average price per barrel climbed $4.61 to $51.21. Crude import volumes fell to 261.89 million barrels from 292.60 million.

The U.S. paid $17.70 billion for all types of energy-related imports, up from $17.40 billion in April.

Imports of industrial supplies decreased $656 million in May. Auto and related parts imports declined $238 million, while imports of foreign-made consumer goods like clothing and household appliances decreased $80 million.

May purchases of foreign-made capital goods such as computer accessories rose $269 million, while food and feed imports gained $55 million.

As for exports, sales of industrial supplies, such as gold and copper, jumped $2.07 billion. Exports of food, feed, and beverages went up by $254 million.

U.S. sales abroad of consumer goods, including art and stereos, increased $228 million in May. Capital goods exports rose by $134 billion.

Meanwhile, auto exports decreased $441 million.

The U.S. trade deficit with China widened in May to $17.48 billion from $16.75 billion the month before. Exports to the country grew 1.6% to $5.25 billion.

But U.S. trade deficits with other major trading partners narrowed. The gap with Japan fell to $1.91 billion, the lowest level since 1984, from $3.22 billion. The deficit with Canada fell to $628 million, its smallest level since March 1994, from $1.20 billion.

The trade gap with the euro area declined to $2.10 billion from $4.16 billion. Meanwhile, the deficit with Mexico decreased to $3.94 billion from $4.12 billion.

Imports Prices Increase in June

Import prices spiked 3.2% last month from May, the Labor Department said Friday, matching the biggest monthly rise since September 1990. They also rose 3.2% in November 2007. Economists in a Dow Jones Newswires survey had expected a 2.3% increase last month.

However, import prices were down 17.4% compared to June 2008. And while petroleum prices rose 20.3% from May, a 10-year high and fifth-straight monthly increase, they were down 45.9% on the year.

Excluding petroleum, import prices were up just 0.2% on the month.

Reports next week on U.S. producer and consumer prices will give a broader read on price pressures. Domestic factors like unemployment, wages and the gap between economic output and its potential are the main determinants of underlying inflation. All three point to little, if any, upward pressure, suggesting Federal Reserve officials can maintain their near-zero interest rate policy for an extended period to combat the recession.

According to Friday's report, prices for non-petroleum industrial supplies and materials imports rose 0.7% last month. Automobile prices were up 0.1%. Prices of imported capital goods were down 0.1%, and consumer goods excluding automobiles advanced 0.1%. Food prices rose 0.5%.

Prices of imported goods from the European Union were up 0.7% on a monthly basis, while those from Canada jumped 2.8%. Prices of products from Japan were up 0.7%, the biggest increase since 1998. However, prices from China slid 0.1%.

Meanwhile, U.S. export prices rose 1.1% from May, though they were still down 6.4% from year-ago levels.

Prices of agricultural exports increased 4.8% on the month, while prices of non-agricultural exports advanced 0.8%.

Wall Street Journal, 7/10/2009