Trade Deficit Rises but Far Below Last Year's
The U.S. trade deficit edged up in April but likely will remain well below last year’s pace as the global recession dampens demand for both foreign goods and U.S. exports like automobiles and heavy machinery.
Analysts said rising prices of imported oil likely won’t widen the trade gap significantly later this year. That’s because higher oil prices are expected to coincide with an improved global economy. So exports of U.S. goods also would rise.
The Commerce Department said Wednesday that the deficit rose for a second straight month in April, climbing 2.2 percent to $29.2 billion. That was slightly higher than economists’ expectations.
The overall deficit is running at an annual rate of $361.1 billion, about half the $695.9 billion total for all of 2008. The drop in imports has been greater than the fall in exports, which also are down sharply as the global recession cuts demand for U.S. products in key markets. Since exports and imports both hit record-highs last July, exports have fallen 26.3 percent and imports are down 34.5 percent.
Because of the global downturn, economists say they don’t think exports, which had been one of the few bright stops for the U.S. economy, will be able to lead the recovery.
“When growth slows, that means demand for everything comes down, and that is true not just in the U.S. but everywhere else,” said Joel Naroff, chief economist at Naroff Economic Advisors.
For April, exports of goods and services fell $2.8 billion, or 2.3 percent, to $121.1 billion — the smallest monthly total since July 2006. The drop included big declines in sales of industrial engines, machinery, and motor vehicles and parts. Sales of commercial aircraft rose.
Imports dipped $2.2 billion, or 1.4 percent, to $150.3 billion, the lowest total since September 2004. Shipments of foreign-made cars, oil drilling equipment, computers and machine tools all fell.
But imports of petroleum bucked the downward trend, rising 2.1 percent to $18 billion. The average price for a barrel of imported crude oil jumped to $46.60 in April, from $41.36 in March. It was the highest level since December and is expected to rise in coming months given recent increases in crude oil prices.
Oil prices rose above $71 a barrel Wednesday to reach a high for this year as investors bought crude as a hedge against the inflation risks of a weakening U.S. dollar. Even with the recent increases, oil prices remain far below last year’s levels when they jumped to record-highs approaching $150 a barrel.
Many economists doubt the trade gap will expand much further. Paul Dales, U.S. economist at Capital Economics in Toronto, said even if oil prices keep rising and push the trade deficit toward $40 billion, that would “reverse only a third of the narrowing … over the past 12 months.”
Dales expects oil prices to retreat to around $50 a barrel. That would keep the nation’s current account trade deficit, the broadest measure of trade, at 2 to 3 percent of the overall economy, less than half the level reached three years ago.
Mahmoud El-Gamal, an economist at Rice University who specializes in energy issues, said rising oil prices won’t necessarily translate into a greater trade imbalance. That’s because forecasts for higher oil prices are tied to expectations for an overall improved global economy. “So our exports bill should go up, too, as the rest of the world starts to import more of our goods.”
Like some others, El-Gamal said he thinks speculation is fueling a “sucker rally” in the oil market.
“Nothing has changed in the real economy in terms of global demand to warrant this rise in prices,” he said.
Still, American manufacturing companies have struggled because of weak domestic demand and the slump in exports.
Declining global sales have forced Caterpillar Inc., the world’s largest producer of mining and construction equipment, to announce substantial layoffs as it scales back production. In April, the Peoria, Ill.-based company reported its first quarterly loss in 17 years as worldwide equipment sales — its largest source of revenue — plunged 29 percent.
Deere & Co., has slashed its 2009 profit forecast twice this year, partly due to expected lower sales of its farm equipment in Europe and South America. Last month, Moline, Ill.-based Deere posted a 38 percent drop in second-quarter earnings, hurt by weaker sales overseas, where it has expanded quickly in recent years.
The politically sensitive deficit with China rose 7.3 percent to $16.8 billion, though that imbalance through the first four months of this year is 11.1 percent below last year’s record pace, according to the Commerce Department.
The U.S. deficit with the European Union jumped to $5.3 billion in April, an increase of 20.8 percent from March. The deficit with Canada rose 58.7 percent to $1.2 billion, and the imbalance with Mexico edged up 5.3 percent to $4.1 billion.
The deficit with Japan rose 23.5 percent to $3.2 billion, partly reflecting U.S. exports to Japan dropping to $3.9 billion, the lowest level in 15 years. Japan has been struggling with its own steep recession.
The $29.2 billion deficit in April followed a revised $28.5 billion March deficit which had been originally reported as a $27.6 billion imbalance. Part of the revision reflected an annual benchmarking of the trade figures to incorporate more accurate data.
The International Monetary Fund predicts the global economy will suffer the biggest drop in activity this year since the Great Depression of the 1930s. Economists are looking for consumer spending to pick up and lead a recovery.
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AP Business Writers Daniel Lovering in Pittsburgh and John Porretto in Houston contributed to this report.
6/10/2009 4:18 PM MARTIN CRUTSINGER AP Economics Writer WASHINGTON