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U.S. Trade Deficit Narrowed in July More Than Forecast, to $44.8 Billion

The U.S. trade deficit narrowed more than forecast in July as exports climbed to a record, offering a bright spot for an economy at risk of a bigger slowdown.

The gap shrank 13.1 percent, the most since February 2009, to $44.8 billion from a revised $51.6 billion shortfall in June, Commerce Department figures showed today in Washington. Exports rose as companies shipped more capital goods and automobiles overseas.

Jobless claims unexpectedly rose last week and consumer sentiment waned, indicating the biggest part of the economy will struggle to gain momentum through the end of the year, separate reports showed. President Barack Obama tonight will propose more than $300 billion of tax cuts and spending measures aimed at creating jobs and shoring up the recovery.

“The July trade numbers suggest trade could boost growth in the third quarter,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida. Still, “the risks still seem to be tilted to the downside with the best-case scenario being growth just muddles along. Job growth is pretty lackluster at this point.”

First-time applications for unemployment benefits rose last week, a sign the labor market is struggling to gain traction. Jobless claims climbed by 2,000 to 414,000 in the week ended Sept. 3, Labor Department figures showed. The monthly average climbed to the highest since mid-July.

More Pessimism

A struggling labor market helps explain why Americans’ sentiment slipped to the second-lowest level this year. The Bloomberg Consumer Comfort Index eased to minus 49.3 last week from minus 49.1. While the drop was within the survey’s three- point margin of error, the index has been stuck below minus 40 - - the level associated with recessions or their aftermath -- since the end of February.

Stocks fell, after the biggest gain in two weeks for the Standard & Poor’s 500 Index, as Federal Reserve Chairman Ben S. Bernanke disappointed investors by not detailing new plans to boost growth. The S&P 500 Index dropped 1.1 percent to 1,185.9 at the 4 p.m. close in New York.

The trade gap was projected to shrink from an initially reported $53.1 billion in June, according to the median forecast of 74 economists surveyed by Bloomberg. Estimates ranged from deficits of $55 billion to $46 billion.

After eliminating the influence of prices to render the figures used in calculating gross domestic product, the trade deficit narrowed to a three-month low of $45.3 billion from $50.3 billion. The number was less than the $47.3 billion deficit averaged in the second quarter, indicating trade may provide a boost to the economy.

Third Quarter

“Trade could add favorably to economic activity during the third quarter,” said Millan Mulraine, senior U.S. strategist at TD Securities in New York. “The slowdown in the global economy may not be as great as we thought a few months ago, which certainly is encouraging.”

Barclays Capital Research raised its tracking estimate for third-quarter growth to 2.5 percent after the trade figures from 2 percent.

Exports increased 3.6 percent to $178 billion in July, boosted by sales of telecommunications equipment, civilian aircraft, autos and industrial engines. U.S. shipments of capital goods and autos and parts to overseas customers were the highest on record.

Imports fell 0.2 percent to $222.8 billion from $223.4 billion in the prior month.

The figures showed a reduction in demand for crude oil as the price per barrel exceeded $100 in July for a fourth month. The average price of imported crude oil was $104.27, compared with $106 in June, today’s report showed. U.S. companies imported 350,657 barrels in July, the fewest since April.

Goods Imports

Imports in July reflected $22.3 billion in shipments of auto parts, the most since February 2008. Parts deliveries from Japan have started to recover after the nation’s March earthquake and tsunami. Automobile-related goods have been entering the U.S. at about 50 percent of the rate before the natural disaster, according to Richard Steinke, executive director of the Port of Long Beach.

A labor market that stagnated in August is weighing on the ability of U.S. households to spend on goods made overseas. Payrolls were unchanged last month, and the unemployment rate held at 9.1 percent, Labor Department figures showed Sept. 2.

“While the economies in our primary markets have generally improved since the lows of the economic crisis, many consumers remain cautious,” Denise Morrison, president and chief executive officer at Campbell Soup Co. (CPB), said on a Sept. 2 conference call with analysts. “The recovery has not progressed at the pace or intensity consumers had hoped for. As a result, consumers remain careful about their purchases and feel the need for resourcefulness and vigilance.”

Soup Maker

Campbell, the world’s biggest soup maker, said fourth- quarter profit declined 12 percent as sales dropped.

Slower growth in developed countries raises the risk manufacturers will temper production. Gross domestic product in the 17-nation euro area rose 0.2 percent in three months ended June from the first quarter, when it increased 0.8 percent. Economic growth in Canada, the U.S.’s largest trading partner, shrank in the second quarter for the first time since the recession two years ago.

The trade gap with China widened to $27 billion, the highest since September, from $26.7 billion as a gain in imports outpaced an increase in exports. The deficit with Canada increased to $3.2 billion from $2.8 billion, while it shrank with the European Union. Exports to South and Central America were the highest ever.

To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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