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High oil prices keep US trade gap rising
By Claire Gallen
AFP
WASHINGTON
Petroleumworld.com 07 13 06
Surging energy prices pushed the US trade deficit up slightly to 63.8 billion dollars in May, the Commerce Department said Wednesday, but some analysts were encouraged by growth in US exports.
The deficit rose 0.8 percent from April's 63.3 billion dollars, but it was not as bad as the average estimate of economists of 65 billion dollars.
Analysts offered a mixed view of the latest report, which suggested some improvement in the balance of payments if oil is taken out of the equation.
Economist Robert Brusca at FAO Economics said the US trade picture "is improving" despite the modest uptick in the deficit.
"The non-oil trade really seems to be turning a corner thanks to stronger growth abroad and a tempering of US demand by high oil prices themselves," he said.
"The big story in today's numbers is that the May trade deficit hardly changed at all despite a 4.4 billion-dollar widening in the petroleum deficit," noted economist Nigel Gault at Global Insight, a research firm.
"Exports rose almost across the board, indicating that US exporters are benefiting from improved growth abroad and from the downward trend in the dollar. Imports fell, probably linked to slower growth in domestic spending."
The report comes a day after the White House reduced its estimate for the federal budget deficit, which along with the trade gap make up the "twin deficits" that have been pressuring the US dollar.
Economists said the report suggests exports, led by an increase in US aircraft sales, are making up a larger component of US economic activity as consumer spending cools.
"I think this is good news," said John Lonski, chief economist at Moody's Investors Service.
Lonski said he sees the trade deficit improving further "in part because we would look for a slower pace of consumer spending in the United States which would curb the growth of imported products."
Others said the trade gap remains far too high and poses risks for the US and global economy.
"We keep shipping more and more of our income overseas and while we are also selling more, the outflow is simply way too high," said Joel Naroff of Naroff Economic Advisors.
"As long as the rest of the world is willing to trade ugly green pieces of paper (or electronic digits) for real goods, the huge gap can be maintained," Naroff said.
"As the in-phase world expansion continues and investment opportunities around the world expand, we will likely see the appetite for US assets decline. This could put further pressure on the dollar and on interest rates. That is a real nightmare scenario for the Fed," he said.
Despite the better-than-expected report, the deficit since the start of the year is 317.9 billion dollars, ahead of the pace at this time last year of 281.7 billion. At the same pace, the US would break last year's record 12-month deficit of 717 billion dollars.
In May, exports rose by 2.7 billion dollars while imports jumped 3.2 billion, the report said.
The main culprit in May was the petroleum deficit of 25.4 billion dollars, a record, up from 21 billion in the prior month as crude oil prices surged. The average price of imported oil hit 61.74 dollars a barrel in the month, an all-time high.
The politically sensitive US trade gap with China was 17.7 billion dollars versus 17 billion in April. The US deficit with Japan meanwhile fell to 7.1 billion dollars from 7.8 billion. The gap with the European Union rose to 10.8 billion dollars from 9.4 billion.
On the export side, the improvement was led by a rise of 688 million dollars in civilian aircraft deliveries.
AFP 12 2146 GMT 07 06
Copyright ©2006 AFP. All Rights Reserved.
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