U.S. Reports Trade Deficit Drop for May : Commerce: Weak consumer demand at home and a sharp decline in imports from Japan were key factors in May’s 17.6% shrinkage, reports say.
The Commerce Department reported Friday that the merchandise trade deficit narrowed in May as U.S. imports fell and exports rose slightly, reflecting slack demand for consumer products at home and providing more evidence that the national recovery remains sluggish.
The May deficit of $8.4 billion was 17.6% below April’s $10.2 billion as the United States imported less oil and fewer cars and consumer products, while wholesalers and retailers worked off excess inventories in the second quarter, economists said.
Lackluster consumer demand was also a reason that the nation’s industrial output shrank 0.2% in June, the first contraction since September, 1992, according to a separate report Friday by the Federal Reserve Board.
The shrinkage of output, a sign of a weak industrial sector, was also attributable to softness in the worldwide market for U.S. manufactured goods and to continuing declines in defense and aerospace, said Richard Berner, chief economist at Mellon Bank in Pittsburgh.
The output report caused long-term interest rates to fall Friday. The yield on the benchmark 30-year Treasury bond closed at 6.54% on Friday, after falling during trading to an all-time low of 6.52%.
The University of Michigan also reported a sharp drop in consumer expectations for the future. Its index of consumer sentiment dropped in July to 76.9 from 81.5 in June.
On the trade side, the Commerce Department reported that the shrinkage of the trade deficit partly reflected the largest drop in the U.S.-Japan trade deficit since December, 1986, to $3.75 billion from $5.5 billion in April.
Economists doubted that trend would continue, however, since Japan reported this week that its U.S. trade surplus grew in June. Fears of Japan’s growing trade surplus are driving Clinton Administration efforts to get Japan to open its markets, one of the goals of a trade agreement signed earlier this month.
All told, U.S. exports in May were $500 million higher than April’s $38.5 billion, while imports fell $1.3 billion from April’s $48.7 billion. April’s trade deficit was $10.2 billion, revised from an earlier report of $10.5 billion.
On the export side, the largest increase came in industrial supplies and materials, which were up 6%, and consumer goods, up 5.6%.
But the biggest month-to-month change was on the import side, in part reflecting price discounting by Japan and the weakening of the dollar against the yen. Imports of automobiles and parts showed the biggest decrease, down 6.5%, with those from Japan down 17%.
Meanwhile, the shrinkage of industrial output “shows that the economy isn’t going anywhere in a hurry,” said John Hekman, an economist and vice president of Economic Analysis Corp. in Century City. “We’re still in an up-and-down period of . . . little growth.”
Strong consumer demand in late 1992 had encouraged wholesalers and retailers to stock up on goods, according to Mellon Bank’s Berner. But as goods entered the pipeline, demand fell off in the first and second quarters, leading to the buildup of inventories and a subsequent drop-off in new orders.
As a result, factories’ rates of operation fell in June to 81.2% of capacity from 81.5% in May and 81.7% in April. That bodes ill for future employment growth, economists said.
Manufacturing production fell to 0.3% in June, after falling 0.1% the month before. Durable goods production dropped 0.4% in June. Durable goods are those meant to last three years or longer.
Production of cars and light trucks plunged 4.4%, following a 3.8% decline in May. The one bright spot in manufacturing was in computer and office equipment, where output rose 2.5%.
