July 11 (Bloomberg) -- The trade deficit in the U.S. narrowed in May as falling crude oil prices and weakening demand for consumer goods trimmed the import bill.
The gap shrank 3.8 percent to $48.7 billion, in line with the median estimate of economists surveyed by Bloomberg News, from $50.6 billion in April, Commerce Department figures showed today in Washington. Purchases from abroad fell to the lowest level in three months, while exports climbed to the second-highest on record.
Slowing global growth, which led central banks from Europe to China to cut interest rates and announce more stimulus a week ago, may signal American companies will have a harder time boosting overseas sales. At the same time, an increase in imports of business equipment indicates sustained investment in the U.S., and more inbound shipments of cars point to continued strength in the auto industry.
“The trade deficit will drift slightly lower because of the decline in the price of oil,” said Jay Bryson, senior global economist at Wells Fargo Securities LLC in Charlotte, North Carolina, who was the only analyst to correctly project the trade outcome. “Exports are holding up, but as we go forward we are going to see pretty weak numbers given the slowdown abroad. Our economy has slowed as well.”
The Standard & Poor’s 500 Index erased losses in the final hour of trading as investors weighed the Federal Reserve’s latest policy minutes for evidence that the central bank may be closer to additional stimulus actions. The 500 Index was at 1,341.45 at the 4 p.m. close in New York, down less than 0.1 percent.
A few Fed policy makers said the central bank will probably need to take more action to boost the labor market and meet its inflation target, according to minutes of their June meeting issued today.
The median forecast in the Bloomberg survey of 70 economists called for the deficit to shrink to $48.6 billion. Estimates ranged from $42.5 billion to $51 billion. The Commerce Department revised the trade deficit for April from an initially reported $50.1 billion.
Imports dropped 0.7 percent to $231.8 billion, the fewest since February, from $233.3 billion the prior month. Demand for crude oil plunged by $2.82 billion in May. Purchases of foreign-made consumer goods like mobile phones and clothing decreased by $375 million, pointing to a slowdown in household spending.
The drop in imports was also reflected in a slower pace of inventory accumulation at the nation’s wholesalers in May. The 0.3 percent gain in stockpiles followed April’s 0.5 percent increase that was smaller than previously estimated, the Commerce Department also reported.
The trade shortfall excluding petroleum widened to $23.8 billion from $22.5 billion in April.
There were some exceptions to the glum reading on imports. A $1.42 billion increase in imports of capital equipment like computers and telecommunications gear indicates business investment is holding up. Automobile and parts imports, which is a separate category from consumer goods, also climbed to a record.
Exports increased 0.2 percent to $183.1 billion, boosted by sales of food and capital equipment.
After eliminating the influence of prices, which are the numbers used to calculate gross domestic product, the trade gap narrowed to $48 billion from $48.7 billion. The average for the quarter so far was slightly higher than that for the first three months of the year, indicating trade will probably subtract a little bit from growth.
The trade gap with the European Union was the biggest since July 2008 as U.S. imports from the region jumped more than exports, perhaps starting to reflect the recent drop in the value of the euro. The deficit with South Korea was the biggest since November 2004.
The deficit with China widened to $26 billion from $24.6 billion in April. Data this week indicated it may keep growing.
China’s total imports rose less than anticipated in June, pushing the trade surplus to a three-year high and adding pressure on the government to support demand as the global economy slows, a report yesterday showed. Inbound shipments increased 6.3 percent from a year earlier, compared with the 11 percent median estimate in a Bloomberg survey.
The trade deficit with China may remain a thorny issue as the U.S. presses it to allow its currency, the yuan, to rise against the dollar and improve access to its market. President Barack Obama this month expanded trade complaints against China, accusing the nation of imposing unfair taxes on American vehicles, mostly from General Motors Co. and Chrysler Group LLC.
Premier Wen Jiabao said promoting investment growth is the key now to stabilizing China’s economic expansion, signaling officials may boost spending to counter a slowdown that probably extended into a sixth quarter.
Stabilizing economic growth is not only a pressing priority for China now, it is also a long-term “arduous” task, Wen said in a statement posted on a government website yesterday.
“Growth-stabilizing policies include boosting consumption and diversifying exports, but currently, what is important is to promote a reasonable growth in investment,” Wen said.
China, the world’s second-biggest economy, on July 5 reduced benchmark interest rates for the second time in a month in an effort to reverse a slowdown in growth.
The outlook for U.S. exports may dim. The Bank of England, which announced July 5 that it would restart buying bonds two months after stopping, said output will likely remain sluggish after contracting in the past two quarters. The European Central Bank the same day cut its main rate to a record low as sovereign debt turmoil threatens to drive the 17-nation euro economy into a recession.
Cooling overseas demand is hurting some American companies like Harley-Davidson Inc. A pickup in the value of the dollar against the euro, which makes U.S.-made goods less attractive to overseas buyers, is also among reasons the biggest U.S. motorcycle maker said first-quarter sales fell 1.1 percent.
“There is an impact with regards to the events and the debt crisis and consumer confidence and potential recessionary pressures in Europe on our business there,” John Olin, chief financial officer, said on a June 26 conference call. “We are seeing the pressures of a devaluing currency” as “everything that we send to Europe is made here” in the U.S., he said.
The dollar climbed 6.7 percent in the 12 months to June 29 against a trade-weighted basket of currencies from its biggest trading partners, according to Fed data.
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