US trade deficit lowest for 18 months

Posted on August 9, 2012

The US trade deficit narrowed to $42.9bn in June, the smallest in 18 months, as lower oil prices curbed imports, while other data showed the labour market continued to improve.

The gap between imports and exports declined 10.7 per cent from a downwardly revised $48bn in May, the commerce department said on Thursday. The figure, the smallest headline deficit since December 2010, came in far below economists’ estimates of $47.5bn.

    The drop in the deficit came largely because the cost of importing crude oil fell to $26.4bn, the least since February. The average price per barrel dropped the most in June since January 2009. Overall imports of goods and services declined 1.5 per cent to $227.9bn, the lowest in four months.

    Exports increased 0.9 per cent to a record $185bn as US companies sold more consumer products, automotive parts, industrial supplies and capital goods abroad. That offset declines in exports of food as well as business and technical services. In spite of Europe’s struggling economy, exports to the 27-nation EU rose 1.7 per cent.

    A narrower trade gap acts as less of a drag on growth because it means the US is spending less on foreign-made products and is reaping the benefits from sales of goods made at home.

    The government said late last month that the economy expanded at an
    annual rate of
    1.5 per cent in the April to June quarter, using an estimate of the June trade deficit to calculate that number.

    The sharp drop in the deficit could mean that the economy grew at a faster pace than initially thought. The better than forecast data might help boost second-quarter growth figures when the government makes its revisions later this month, economists said.

    But the recent rebound in oil prices and weaker European and Asian economies mean the deficit will probably not continue to contract, making it more difficult for trade to aid US economic expansion.

    “Survey measures of export orders have already fallen sharply and it probably won’t be long before actual export growth slows. The recent easing in import growth should mean that net trade won’t take a major chunk out of GDP growth in the second half of this year. But it will probably remain a drag well into next year,” said Paul Dales, senior US economist at Capital Economics.

    Meanwhile, the number of Americans who claimed unemployment insurance fell unexpectedly last week, another indication of improvement in the US labour market.

    First-time claims for jobless benefits fell by 6,000 to a seasonally adjusted 361,000 for the week ending August 4, labour department data showed. Economists surveyed by Bloomberg had expected claims to be close to 367,000.

    The previous week’s data were revised up to 367,000 from the 365,000 initially reported.

    Initial jobless claims reflect weekly firings and tend to fall as job growth – measured by the monthly non-farm payrolls report – accelerates.

    The labour department’s July employment report showed employers added 163,000 workers last month, the biggest gain since February. But even as hiring picked up, the unemployment rate – based on a more volatile survey of households – rose from 8.2 to 8.3 per cent.

    The four-week new claims average, which smoothes out the volatility of the weekly data, rose to 368,250 last week from 366,000.

    “The initial jobless claims data over the last three weeks hint at a slowing in the rate of gross job losses (and thus higher net job creation),” said John Ryding and Conrad DeQuadros of RDQ Economics. “The labour market is suddenly not looking quite so moribund.”

    The number of people continuing to collect jobless benefits rose by 53,000 in the week ended July 28 to 3.33m. This followed a two-month low of 3.27m the week prior.

    Those Americans who used up their traditional benefits and were collecting emergency and extended payments decreased by about 127,000 to 2.42m in the week ended July 21.

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