Trade Gap Narrows to $7.58 Billion

The U.S. trade deficit narrowed to $7.58 billion in July, its lowest level in nearly five years, the government said today, but some analysts fear the improvement will be temporary if the dollar continues to rise against other currencies.

The Commerce Department said the July deficit dropped 5.3% from a revised June imbalance of $8.01 billion. The July gap was the slimmest since a $6.79-billion imbalance in December, 1984.

Analysts pointed to the export category in the report, particularly capital goods, as the main reason for the deficit improvement. While exports dropped 1.8%, they still totaled a strong $30.74 billion, the fifth straight month that exports have remained above $30 billion.

Capital goods exports rose $300 million while capital goods imports fell $530 million.

“That is exactly the type of thing we need to see,” said Howard Lewis, vice president for international economics at the National Assn. of Manufacturers. “We don’t have a prayer of solving our trade problems if we don’t have a big turnaround in our capital goods balance.”

Overall, imports fell 2.5% to $38.32 billion, their lowest level since February, due in part to an unexpectedly small rise in oil imports. The trade deficit is the difference between imports and exports.

Projections Given

Many economists had been looking for a deficit of $8.5 billion to $9 billion because of increasing oil imports and the rising value of the dollar, which cuts into exports by making them more expensive overseas.

Allen Sinai, chief economist for The Boston Co., said the export volume reflects booming economies overseas but cautioned that “the going will get tougher as we move to the end of the year and into the next.”

The reason, he said, is that “by late in the year, the higher dollar will be denting exports” and “the booming economies overseas will probably slow down.”

But Michael K. Evans of Evans Economics Inc., a Washington consulting firm, questioned the impact of the higher dollar.

“It used to be that when the dollar rose, domestic manufacturers threw in the towel, saying they couldn’t compete at those prices,” he said. “Now a lot of our clients are deciding to stick it out. They realize their profit margins will be temporarily slashed, but they’re determined to retain their foothold in the foreign market and ride this thing out.”

Oil Imports Up 2.9%

Oil imports rose 2.9% to $4.32 billion in July. The amount rose to 8.14 million barrels a day from 7.93 million in June, but the price per barrel fell to $17.12 from $17.67 in June.

Analysts say oil imports will continue to rise as U.S. consumption increases and domestic production falls, becoming a major factor in producing a widening deficit in coming months.

The American Petroleum Institute, an industry group, reported imported oil in July accounted for more than half of monthly U.S. petroleum needs, the first time that has occurred in 12 years.

The decrease in the July deficit represented the first back-to-back declines since mid-1988.