Trade Deficit Narrows

The U.S. trade gap shrank in May to its lowest level since January 2000 as service industry exports hit records and imports dropped for a second straight month, the government said Thursday.

The news bodes well for second-quarter gross domestic product and, coupled with a larger-than-expected rise in the leading economic indicator index for June, was welcome amid less-rosy manufacturing data from the Federal Reserve Bank of Philadelphia and a mixed jobless claims report.

The unexpected fall in imports came against a backdrop of growing complaints from U.S. business, labor and farm groups about the strength of the U.S. dollar against other major currencies, which they say hurts U.S. exports.

The Commerce Department said the May trade shortfall totaled $28.3 billion, shrinking $3.7 billion from April. Analysts surveyed before the report had forecast the deficit to grow slightly in May.

The trade gap with Japan, whose economy continues to sputter, totaled $4.8 billion in May, the lowest since January 1999. Much of that was due to a drop in high-tech imports and automobile imports from Japan. Overall, imports from Japan were the lowest in two years, Commerce said.

The trade gap with Western Europe also declined, aided by record exports to Britain. The May trade deficit with South and Central America was the lowest since November 1999.

First-time claims for jobless benefits fell a sharp 35,000 to 414,000 for the week ending July 14 from a revised 449,000 the week before. But the number of people still on benefit rolls after a week rose to the highest point since October 1992.

The four-week moving average, which smooths out fluctuations in claims for unemployment benefits, was just slightly higher at 414,500, from a revised 412,000 the prior week.

“It does augur well for the economy early next year,” said Mark Zandi, chief economist of Economy.com. “Indications are growing that the economic downturn is near bottom.”