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U.S. Economy: Trade Gap Widens as Growth Rebounds

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May 12 (Bloomberg) -- The trade deficit in the U.S. widened in March to the highest level in more than a year as imports climbed faster than exports, adding to evidence of the global recovery from the worst recession in the post-World War II era.

The gap grew 2.5 percent to $40.4 billion, in line with the median forecast in a Bloomberg News survey, Commerce Department figures showed today in Washington. The value of goods sold overseas and those purchased abroad, led by a surge in oil demand, rose to the highest levels since October 2008.

A rebounding American consumer, combined with business spending on equipment and inventories, means imports may keep growing. Exports will probably also improve as expanding economies in Asia and Latin America, which are giving companies such as Cummins Inc. and Dow Chemical Co. a lift, counter any drag from Europe as the debt crisis hurts the euro.

“Imports will continue to outpace exports as the U.S. recovery broadens,” said Harm Bandholz, chief U.S. economist at UniCredit Research in New York. “The global recovery bodes well for U.S. exports,” he said, and “the direct impact of the woes in Europe should be limited.”

The Treasury Department also reported today that the U.S. posted its largest April budget deficit on record as receipts declined. The excess of spending over revenue rose to $82.7 billion compared with a $20.9 billion gap in April 2009.

Shares Rally

Stocks climbed and the dollar rallied against the yen on signs of a pickup in global economic growth. The Standard & Poor’s 500 Index rose 1.4 percent to close at 1,171.67. The dollar increased 0.6 percent to 93.17 yen at 4:12 p.m. in New York.

The trade gap was projected to widen to $40.5 billion, according to the median forecast in a Bloomberg News survey of 80 economists. Estimates ranged from deficits of $36.2 billion to $42 billion. The Commerce Department revised the February shortfall down to $39.4 billion from a previously estimated $39.7 billion.

Imports climbed 3.1 percent in March to $188.3 billion, led by a $2.76 billion surge in crude oil purchases and increasing demand for foreign-made automobiles.

The rise in oil reflected higher prices and volumes, and helped push U.S. imports from Mexico to a record. The average price of a barrel of crude for the month was $74.32, the highest since October 2008.

Oil Imports

Trading on the New York Mercantile Exchange indicates prices climbed even higher in April before retreating so far this month on concern the need to reduce government debt in countries like Greece and Portugal will slow European economies.

Excluding petroleum, the trade gap shrank to $15.6 billion from $16.4 billion in February.

A strengthening U.S. economy will keep drawing in more products from abroad. Consumer spending, which accounts for about 70 percent of the world’s largest economy, rose in the first three months of the year by the most since 2007. Business investment in new equipment and software over the past two quarters has put in the biggest back-to-back gain since 2000.

Surging growth in emerging Asian and Latin American countries is propelling demand for U.S. goods. Exports increased 3.2 percent to $147.9 billion, reflecting sales of generators, semiconductors and industrial supplies such as petroleum products.

Global Growth

China, the world’s third-biggest economy, expanded 11.9 percent in the first quarter from the same time in 2009, the fastest pace in almost three years. India’s growth rate, which is due May 31, was probably 8.6 percent last quarter, the most since December 2007, government officials have said. Brazil, Latin America’s biggest economy, will expand 6.26 percent in 2010, the fastest pace in 24 years, a central bank survey said this month.

The trade surplus with the so-called newly industrialized countries, which include Singapore and Korea, climbed to a record in March. The deficit with China widened.

Increasing demand in Asia and Latin America is behind the more optimistic outlook for companies such as Cummins, a Columbus, Indiana-based maker of diesel truck engines and generators, which raised its sales forecast for 2010.

“Our strength in large developing markets such as China, India and Brazil has given us a significant boost as those economies have continued to recover from the recession more quickly than other regions,” Chief Executive Officer Tim Solso said in a statement on April 27.

Chemical Sales

A rebound in the U.S. and overseas markets boosted first-quarter sales by 48 percent at Midland, Michigan-based Dow, the largest U.S. chemical maker.

The euro has slumped 12 percent against the dollar so far this year as investors grew more concerned fiscal turmoil in the region will hamper Europe’s economic recovery. A sustained decline may restrain further progress in U.S. sales overseas.

In addition to making American goods more expensive to European buyers, the dollar’s appreciation against the euro will also weigh on sales to economies where American companies compete with European firms.

To contact the reporters on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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

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