Bloomberg News

U.S. Economy: Trade Gap Narrows as Exports Rise to Record

June 09, 2011

(Updates with closing market prices in fifth paragraph.)

June 9 (Bloomberg) -- Record exports and lower oil purchases unexpectedly helped narrow the U.S. trade deficit, easing concern that the world’s largest economy is faltering.

The gap shrank 6.7 percent to $43.7 billion in April, the lowest since December, Commerce Department figures showed today in Washington. Other reports showed applications for jobless benefits rose last week and consumer confidence improved.

Stocks rallied on expectations trade will help boost economic growth in the second quarter. A 10 percent drop in the dollar over the past 12 months will probably keep lifting overseas sales at manufacturers like Dow Chemical Co., helping the economy counter slowing consumer spending and auto sales.

“Our exports continue to perk along,” said Samuel Coffin, an economist at UBS Securities LLC in Stamford, Connecticut. “Foreign growth is still moving along at an OK pace, and the dollar is helping out exports to some degree.”

The Standard & Poor’s 500 Index rose 0.7 percent to 1,289 at the 4 p.m. close in New York. The dollar was worth 80.36 yen, up from 79.89 yen late yesterday.

Applications for unemployment insurance benefits increased by 1,000 to 427,000 in the week ended June 4, the Labor Department said. Economists surveyed by Bloomberg News projected a drop to 419,000, according to the median forecast.

Consumer confidence improved as gasoline prices ebbed. The Bloomberg Consumer Comfort Index climbed to minus 45.9 in the period to June 5, the best showing since the end of April, from the prior week’s minus 47.1. Sentiment improved the most among those making less than $50,000 a year.

Economist Projections

The trade deficit was projected to widen to $48.8 billion from an initially reported $48.2 billion in March, according to the median forecast of 75 economists surveyed by Bloomberg News. The Commerce Department revised the March shortfall down to $46.8 billion.

The report prompted economists at Morgan Stanley to raise their estimates for second-quarter growth to an annual rate of 3.1 percent from 2.7 percent. Growth slowed to a 1.8 pace in the first quarter.

Federal Reserve Chairman Ben S. Bernanke is among policy makers projecting the softening in growth will be temporary. Bernanke this week said the economy is likely to pick up as fuel prices moderate and disruptions of parts supplies ease as factories in Japan recover from an earthquake and tsunami.

The drop in the value of the dollar against a trade- weighted basket of currencies from the country’s biggest trading partners may be one reason for continued optimism on sales overseas.

Growth Drivers

“The low dollar means we can export, so we are actually fundamentally growing globally from the U.S.,” Andrew Liveris, president and chief executive officer at Dow Chemical, said during a June 2 conference call. “We see strong growth drivers in emerging regions. China is the locus of growth.”

After eliminating the influence of prices, which renders the figures used to calculate gross domestic product, the trade deficit in April fell to $44.2 billion, the lowest since February 2010, from $49.7 billion. The number was smaller than the $50.4 billion deficit averaged in the first quarter.

Exports increased 1.3 percent to $175.6 billion, boosted by sales of fuel oil, petroleum products and computers.

Imports dropped 0.4 percent to $219.2 billion from $220.2 billion in March. Demand for foreign-made automobiles and parts dropped by $2.82 billion to $19.1 billion.

Auto Production

The disaster in Japan curtailed purchases from overseas. Supply disruptions caused by the earthquake and tsunami will cut vehicle production in America and Japanese exports to the U.S. by a combined 300,000 to 400,000 units in the second quarter, Ellen Hughes-Cromwick, chief economist at Dearborn, Michigan- based Ford Motor Co., said during a June 1 conference call with analysts.

The biggest drop in auto stockpiles in more than a year restrained growth in wholesale inventories, another report from the Commerce Department showed today.

The 0.8 percent increase in inventories in April compared with a 1 percent gain median forecast in a Bloomberg News survey and followed a revised 1.3 percent increase in March that was larger than initially estimated. Sales increased 0.3 percent in April after climbing 3 percent the prior month.

Crude oil imports fell by $2.42 billion as prices rose. The average price of a barrel of crude climbed to $103.18, the highest since September 2008. The U.S. imported 8.41 million barrels per day on average in April, the fewest since October.

Economy Cools

The rise in fuel prices and the disaster in Japan have taken a toll on the U.S. economy. Consumer spending grew less than forecast in April, according to Commerce Department data. Manufacturing expanded in May at the slowest pace in more than a year, the Institute for Supply Management said last week.

Employers in May added the fewest number of workers in eight months and the jobless rate unexpectedly increased to 9.1 percent, further raising the risk of an economic slowdown, Labor Department figures showed June 3.

The trade gap with China increased to $21.6 billion from $18.1 billion. Exports to France climbed to the highest level since May 2008 and demand for American goods from countries in the Organization of Petroleum Exporting Countries increased to the highest level since December 2008.

Dow Chemical, based in Midland, Michigan, also expects “a short-term boost in Japan as that country rebuilds from its recent tragic natural disaster,” Liveris said.

The Commerce Department today also issued revisions for trade dating back to 1999. For 2010, the trade gap was revised up by $4.3 billion, or 0.9 percent, to $500 billion.

--With assistance from Bob Willis and Shobhana Chandra in Washington. Editors: Christopher Wellisz, Paul Badertscher

To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


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