U.S. Trade Deficit Widens to Record
The U.S. trade deficit widened much more than expected in June, hitting a record $55.8 billion on the biggest drop in exports in nearly three years and record imports, the government said Friday.
Separate reports showed producer prices largely under wraps last month and consumer sentiment eroding in August.
Wall Street economists had expected the trade gap to grow, but looked for a deficit of just $47 billion. Instead it jumped 19%, the biggest increase in more than five years.
Analysts said the unexpectedly large gap would lead the government to lower its reading of second-quarter economic growth, which it had put at a 3% annual rate in a snapshot last month. Before Friday, economists had thought the GDP figure would be bumped up.
“It’s extraordinary, I’ve never seen this big a swing in one month,” Kevin Logan, an economist at Dresdner Kleinwort Wasserstein in New York, said of the worsening trade picture.
The Bush administration said the widening gap reflected weak growth overseas, while Democratic presidential hopeful Sen. John F. Kerry’s campaign faulted President Bush for failing to vigorously enforce trade agreements.
The Labor Department said the producer price index, which gauges prices received by farms, factories and refineries, rose 0.1% last month, after a 0.3% fall in June. Economists had expected a 0.2% gain.
Energy prices jumped 2.3%, but that was largely offset by a 1.6% plunge in food costs.
Core producer prices, which strip out volatile food and energy costs, gained a slim 0.1%, as expected.
Economists said the price report suggested inflation at the wholesale level was under wraps, although some expressed concern that rising prices further back in the production pipeline could spell trouble later.
The biggest sore spot in the U.S. price picture has been oil. The recent run-up in oil prices showed through in all three economic reports Friday, helping stoke June’s record imports, putting upward pressure on producer prices and, economists say, souring consumer moods.
The University of Michigan’s consumer sentiment index for early August fell to 94 in from 96.7 at the end of July.
But the trade report drew the most attention on Wall Street.
Economists were taken aback by the decline in exports, which fell 4.3% in June. The drop was second only to a sharp plunge in September 2001, when terror attacks brought the U.S. economy to a near standstill.
At the same time, imports climbed 3.3% to an all-time high, reflecting higher oil prices and strong demand for capital goods.
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Greater gap
U.S. trade deficit of goods and services, seasonally adjusted (In billions) July: $-55.8
Source: Commerce Department
