U.S. Trade Gap Falls Unexpectedly

Tue Jul 13, 2004

WASHINGTON (Reuters) - The U.S. trade deficit narrowed unexpectedly in May as stronger growth overseas and the weak U.S. dollar helped propel exports to record levels, according to government data on Tuesday.

Analysts said the smaller-than-expected trade gap would cause them to boost their second-quarter U.S. economic growth forecast. The May trade gap of $46.0 billion was below a median estimate of $48.3 billion made by Wall Street analysts surveyed before the report.

The deficit narrowed for the first time in six months despite the highest prices for imported oil in nearly 22 years, which helped pushed overall imports to a record as well.

"The narrowing of the trade balance now looks to provide a favorable impact (on) second-quarter output," said Richard Dekaser, chief economist with National City Corp. in Cleveland.

Jim Glassman, senior economist with J.P. Morgan Securities in New York, said the report should prompt forecasters to raise their estimates of second-quarter growth by "a half a point or so," depending on the June trade numbers.

The dollar rose against major currencies on the strength of the report, while stock futures indicated the U.S. market would open flat.

U.S. exports jumped nearly 3.0 percent to a record $97.1 billion, as overseas companies stepped up purchases of capital goods and industrial materials ranging from civilian aircraft and industrial engines to computers and drilling equipment. U.S. auto and auto part exports also set a record.

Despite the smaller monthly trade gap, the annual deficit remained on track to surpass last year's record of $496.5 billion. In the first five months of this year, the trade gap has soared to $231.0 billion from $208.7 billion in the same period last year.

U.S. imports increased fractionally in May to a record $143.1 billion, aided by a record oil import bill of $10.5 billion. U.S. imports from OPEC countries hit a record $7.4 billion and the trade gap with those countries was a record $5.6 billion.

CONSUMER DEMAND

Strong U.S. consumer demand sucked in record levels of auto and auto imports and also sent imports of food, beverages and animal feeds to a new high.

But a separate report on Tuesday showed U.S. chain store sales slowed last week compared with the same time last year, as unseasonable weather continued to cool demand for summertime items.

Sales growth remained steady last week, compared with the 0.9 percent increase in the previous week, the International Council of Shopping Centers and UBS said in a joint report. Compared with the same week a year ago, sales increased 3.4 percent, slowing sharply from the 4.4 percent growth pace of the preceding week.

The politically sensitive trade deficit with China rose slightly to $12.1 billion as imports from that country leapt to their second highest level on record. U.S. exports to the Asian giant rose more than 6.0 percent to $2.9 billion.

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