AP News

Ahead of the Bell: US Trade Deficit

WASHINGTON (AP) — A weaker global economy likely dampened demand for American-made products in July, leading to a wider U.S. trade deficit.

Economists expect the trade deficit grew to $44.5 billion in July from $42.9 billion in June, according to a survey by FactSet.

The June deficit had been the lowest in 18 months. It narrowed because of a drop in oil imports and a rise in exports.

A wider trade deficit acts as a drag on growth because the U.S. is typically spending more on imports while taking in less from the sales of American-made goods.

Economists say July U.S. exports were hurt by a worldwide economic slowdown.

Many countries in Europe are in recession. The region accounts for about one-fifth of U.S. exports.

Other big markets for American exports — China, India and Brazil — are reporting slower growth.

On Monday, China reported that its imports shrank in August, a sign that its economic slump was worsening. China is the world's second largest economy. About 7 percent of U.S. exports go to China.

U.S. manufacturing activity shrank for a third straight month in August, according to the Institute for Supply Management. The group of purchasing managers also said export orders contracted for a third straight month.

The overall U.S. economy grew at an annual rate of just 1.7 percent in the April-June quarter, down from growth of 2 percent in the January-March period. Many economists believe growth will remain lackluster for the rest of the year, reflecting in part falling demand for U.S. exports.

American employers added just 96,000 jobs last month, down from an increase of 141,000 jobs in July and well below the average 226,000 jobs a month created from January through March. Manufacturing, which has been one of the few bright spots in this recovery, lost 15,000 jobs in August.

While the overall unemployment rate fell to 8.1 percent from 8.3 percent in July, the improvement came only because many people gave up looking for work and therefore were not counted in the government's calculations.

The weak unemployment report has lifted expectations that the Federal Reserve will approve more help for the U.S. economy at their meeting this week.

Many analysts believe the central bank could announce another round of bond buying. The goal of the program is to push down long-term interest rates to boost borrowing and spending.

The Fed's decision will be announced on Thursday at the conclusion of its two-day meeting. Fed Chairman Ben Bernanke will also hold a news conference and the central bank will update its economic forecasts.

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