U.S. Trade Deficit Hits New High on Economy’s Strength

The U.S. trade deficit set another record in May, with exports and imports both declining slightly and the gap with key North American trading partners Canada and Mexico surging to an all-time high.

The nation’s trade deficit has soared all year as the U.S. economy continued to outpace its weaker trading partners. May’s imbalance was no exception--rising to $31.04 billion from $30.50 billion in April, the Commerce Department said Wednesday.

The deficit widened in the face of an unexpected decline in both imports and exports for a second straight month--possible signs that U.S. growth has begun to slow and the strong U.S. dollar is beginning to undercut overseas sales.

The 0.3% drop in inbound goods and services to $116.8 billion in May was mainly due to a 4.9% decline in the value of imports of automobiles and parts, which often fluctuate from month to month. Automotive imports fell 6% in February, for example, but rose in March and April.

Elsewhere, signs remained robust, however. Consumer goods including televisions, toys and VCRs continued to pour into the country at a record pace.

Businesses are starting to stock up on imports for the start of the school year in September and the Christmas sales that follow. That has meant increased cargo at the Port of Los Angeles, where shipments exceeded 200,000 containers for the second time ever during May.

“Consumer spending remains extremely strong, and businesses--through their importing--expect that to continue,” said Joel Naroff, president of Naroff Economic Advisors Inc. in Philadelphia. “There doesn’t seem to be any sign that the consumer is cutting back.”

Petroleum imports rose 6.6% in May, and the quantity climbed to 297 million barrels, the highest since August 1998. But the average price per barrel was slightly lower than the two preceding months.

Exports fell a sharper 1% to $85.7 billion, also the second straight monthly decline, as shipments of computer parts and other electronic goods dropped in value. Exports of civilian aircraft, semiconductors and other products rose.

Analysts expect the decline partly reflected lower prices for computers and other products rather than easing demand overseas.

“The trend in exports is still upward,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics Ltd. in Valhalla, N.Y.

But others said the continued strength of the U.S. dollar against foreign currencies--which tends to make U.S. goods more expensive abroad--may also be cutting into exports.

“The dollar is very strong,” said Rick Egelton, economist at Bank of Montreal in Toronto. “Imports are stronger than they otherwise would be, and it is serving to constrain exports.”

Federal Reserve Chairman Alan Greenspan has cited the growing trade deficit as one of the major imbalances in the U.S. economy, and analysts have warned that the gap could undercut the dollar if it continued to grow.

Generally, the value of the dollar against other world currencies suffers when the trade gap rises because it means Americans will send more dollars abroad to pay for imports than the country will be drawing in from sales of exported goods.

As expected, trade gaps with major U.S. trading partners increased in May, as American consumers continued to draw in imports even after a string of interest-rate hikes.

The deficit with the United States’ North American Free Trade Agreement partners Canada and Mexico rose to a record $6.41 billion in May.

Broken down, the gap with Canada increased to $3.96 billion from $3.70 billion in April, while the deficit with Mexico rose more sharply to $2.45 billion in May from $1.45 billion in the previous month.

The U.S. trade deficit with China rose to $6.31 billion in May from $5.84 billion in April, even though American exports to China were the highest since October 1998.

The trade imbalance with major oil-producing countries was the second-highest on record at $4.12 billion in May. The deficit with Western Europe also rose, reaching $5.69 billion in May compared with $4.65 billion in April.

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U.S. Trade

Here’s a look at the U.S. trade report:

Imports/Exports (In billions)

Imports: $116.8 billion

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Exports: $85.7 billion

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Deficit (In billions)

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Deficit: -$31.0 billion

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Source: Commerce Department