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U.S. Trade Deficit Unexpectedly Surges as Oil Prices Climb

U.S. Trade Deficit Unexpectedly Surges on Oil Imports
A tanker truck driver unloads various grades of gasoline into the underground tanks at a Sunoco gas station in Arlington, Virginia, U.S. Photo: Paul J. Richards/AFP/Getty Images

The trade deficit in the U.S. widened in May to the highest level in almost three years, reflecting a surge in the cost of imported crude oil.

The gap grew 15 percent to $50.2 billion, exceeding all forecasts of 73 economists surveyed by Bloomberg News and the biggest since October 2008, Commerce Department figures showed today in Washington. Exports held near April’s record.

A weaker U.S. dollar and growing economies overseas may keep bolstering demand for American-made products, benefiting companies like Smithfield Foods Inc. The deficit may narrow as the recent drop in oil costs and a slowdown in consumer spending curb imports, indicating trade will help prop up the world’s largest economy.

“Oil has obviously come off, so you’re going to have a significant drop back there,” said Paul Ashworth, chief U.S. economist at Capital Economics Ltd. in Toronto. “This quarter, trade will certainly make a strong positive contribution to GDP growth. We’ve had rapid growth in developing countries.”

Federal Reserve policy makers were divided on whether the economy needed additional stimulus, minutes of the central bank’s June 21-22 meeting showed today. Some members said a further slowdown in growth would signal a need for additional support, while others said the growing risk of inflation would require withdrawing stimulus sooner than currently anticipated.

Stocks fell after a cut in Ireland’s debt rating snuffed out a late-day rally propelled by the Fed minutes as officials didn’t rule out taking additional steps to spur the recovery. The Standard & Poor’s 500 Index dropped 0.4 percent to 1,313.64 at the 4 p.m. close in New York.

Exceeds Forecasts

The trade gap was projected to widen from an initially reported $43.7 billion in April, according to the median forecast of the economists surveyed by Bloomberg. Estimates ranged from deficits of $40 billion to $48 billion. The Commerce Department revised the April shortfall to $43.6 billion.

After eliminating the influence of prices, which renders the figures used to calculate gross domestic product, the trade deficit rose to $47.8 billion from $43.9 billion. The second-quarter average so far remains lower than $50.4 billion average in the first three months of the year, indicating trade will probably contribute to growth for the April through June period.

Trade helped damp the first quarter’s economic slowdown, contributing 0.14 percentage point to gross domestic product. Economists at Goldman Sachs Group Inc. in New York are among those projecting that trade will add to growth this quarter.

Near-Record Imports

Imports rose 2.6 percent to $225.1 billion, second only to the record $231.6 billion reached in July 2008. Purchases of food and capital goods produced overseas reached records in May, the report showed. The latter is a sign business investment in the U.S. continues to advance.

A barrel of crude oil cost an average $108.70 in May, the Commerce Department said, the most since August 2008. The petroleum gap for the month was the biggest since October 2008.

Excluding petroleum, the trade gap rose to $19.8 billion from $17.5 billion in April.

Exports decreased 0.5 percent to $174.9 billion, also the second-highest on record and depressed by a drop in foreign demand for industrial supplies like fuel oil and cotton. Purchases of American-made capital equipment were the strongest ever.

“The big picture is exports will continue to rise as imports rise more slowly because we’re getting some relief on our imported oil bill,” Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh, said before the report.

Lower Dollar

A 9.5 percent drop in the dollar over the 12-months ended July 1 against a weighted basket of currencies from the country’s biggest trading partners will probably keep propelling sales to buyers in growing countries like China and Brazil.

“We’re in an environment of cheap U.S. dollars and with a balance between supply and demand, both domestically and around the world,” said C. Larry Pope, chief executive officer of Smithfield Foods Inc., owner of the world’s biggest hog slaughterhouse.

“The industry has been reporting quarter after quarter improved export volumes,” largely tied to Asian markets, Pope said during a June 16 call with analysts.

Goods shipped into the U.S. may receive a temporary boost in coming months as Japanese suppliers recover from disruptions caused by the natural disaster in March. Imports from Japan dropped by $500 million to $8.3, narrowing the U.S. trade gap with the Asian nation to $2.6 billion from $3.6 billion.

The trade gap with China, on the other hand, climbed to $25 billion from $21.6 billion in April.

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