Thursday, June 10, 2010

Trade Deficit Widens as Imports, Exports Decline

U.S. Economy: Trade Deficit Widens as Imports, Exports Decline

By Courtney Schlisserman

June 10 (Bloomberg) -- The trade deficit in the U.S. widened in April to the highest in more than a year as exports and imports both declined.

The gap grew 0.6 percent to $40.3 billion, the most since December 2008, Commerce Department figures showed today in Washington. A separate report showed more Americans than anticipated filed claims for jobless benefits last week.

Overseas shipments remained at the second-highest level since October 2008 even after a decline that reflected lower sales of pharmaceuticals, soybeans and generators. Economic growth in Asia may fuel overseas sales at companies including 3M Co., helping cushion the blow from the European debt crisis and a stronger dollar.

The declines in imports and exports follow “big growth in both those categories in March so it could just be some payback,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. Trade’s contributions to growth will diminish, he said, “particularly now that you have the added factor that the dollar is strengthening and foreign growth might be slowing, particularly in Europe.”

Stocks in the U.S. rose as reports from Asia spurred optimism for global economic prospects. China’s customs bureau said the nation’s exports climbed 48.5 percent in May from a year earlier. Japan’s economy grew more than earlier estimated in the first quarter and Australian employers added workers for a third straight month.

The Standard & Poor’s 500 Index climbed 2.3 percent to 1,080.04 at 11:31 a.m. in New York. Treasuries fell, pushing the yield on the 10-year note to 3.25 percent from 3.18 percent yesterday.

March Deficit Revised

The U.S. trade gap was projected to widen to $41 billion, according to the median forecast in a Bloomberg News survey of 75 economists. The Commerce Department revised the March deficit to $40 billion from a previously estimated $40.4 billion.

Jobless claims dropped by 3,000 to 456,000 in the week ended June 5, a Labor Department report showed. Economists surveyed by Bloomberg News projected 450,000 claims, according to the median forecast.

While payrolls rose for a fifth month in May, hiring by companies was less than forecast, underscoring Federal Reserve Chairman Ben S. Bernanke’s comments yesterday that there will be “only a slow reduction” in the unemployment rate. Job gains are needed to spur consumer spending, which accounts for 70 percent of the economy, and ensure a sustained expansion.

Exports Decline

Exports from the U.S. decreased 0.7 percent to $148.8 billion. Imports slipped 0.4 percent in April to $189.1 billion, led by a decrease in demand for pharmaceuticals, crude oil and televisions from abroad.

Imports of capital goods, including computers, semiconductors and telecommunications equipment, climbed in April to the highest level since October 2008, signaling business investment continues to grow. Exports of such products also increased.

The trade deficit with the European Union narrowed to $5.73 billion in April from $7.06 billion in May. The dollar’s 12 percent gain against the euro since April 14 may dim the outlook for exports because it makes American-made goods more expensive in Europe.

St. Paul, Minnesota-based 3M, maker of 55,000 products ranging from Post-it Notes to dental implants, is among companies saying it has yet to feel the effects of the European debt crisis.

Growth Driver

The company “hasn’t really seen a change” in business in Europe and it started the year projecting that region “would be a very slow, low-growth market,” Chief Financial Officer Patrick Campbell said at an investor conference June 8. “Emerging markets remain a critical growth driver for us,” he said.

April sales for Midland, Michigan-based Dow Chemical Co., the world’s second-largest chemical maker, topped the monthly average in the first quarter and May was probably stronger, Chief Executive Officer Andrew Liveris said in a June 2 webcast from New York.

Liveris told investors to “stop panicking” over the European debt crisis or Chinese efforts to cool growth. “Demand is good,” he said.

The U.S. trade gap with China grew to $19.3 billion in April from $16.9 billion the prior month. The U.S. has been trying to pressure China to allow the currency to strengthen. Since July 2008, the yuan has been held by officials around 6.83 per dollar.

“The broad strength of U.S. exports to China and the world is one reason why we are seeing strong growth in manufacturing,” Treasury Secretary Timothy F. Geithner told the Senate Finance Committee today.

Imported Petroleum

The quantity of imported petroleum dropped, swamping an increase in the price per barrel to $77.13, the highest since October 2008, according to today’s report. Excluding petroleum, the trade gap widened to $16.3 billion from $15.5 billion in March.

A rebound in U.S. consumer spending and business investment, combined with the need to replenish depleted inventories, means a retreat in demand for goods made abroad will not persist.

Household purchases climbed last quarter at the fastest pace in two years, while business spending on equipment and software in the six months to March increased by the most in a decade, according to figures from the Commerce Department.

The trade balance adjusted for inflation, which is the figure used to calculate gross domestic product, increased to $44.3 billion in April. The gap was larger than the average $42.3 billion a month in the first quarter, putting trade on track to subtract from growth from April through June.

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