Trade Deficit in U.S. Jumped in May as Imports Near Record

Courtesy of Bloomberg News by Shobhana Chandra: The trade deficit in the U.S. unexpectedly jumped in May as imports climbed to the second-highest level on record, pointing to an economy that is overcoming higher taxes and government cutbacks.

The gap widened by 12.1 percent to $45 billion, the biggest since November, from $40.1 billion in April, Commerce Department figures showed today in Washington. The median forecast in a Bloomberg survey of 71 economists called for a $40.1 billion deficit. The value of imports at $232.1 billion was second only to a record $234.3 billion in March 2012.

Purchases of cellular phones, automobiles and fuel produced overseas add to signs demand from American consumers and businesses is picking up heading into the second half of the year. The report also showed exports stagnated, reflecting slack global growth as markets from China to Europe (EUGNEMUQ) struggle to gain momentum.

“We are seeing a pickup in demand on the consumer side that’s boosting imports,” said Robert Rosener, an economist at Credit Agricole CIB in New York. “The U.S. will keep growing faster than other areas of the world. We don’t see a huge rise in exports, but expect a big gain in imports.”

Other reports today showed companies boosted employment in June and fewer workers filed claims for unemployment benefits last week.

Payrolls climbed by 188,000 workers in June, exceeding the median forecast in a Bloomberg survey, following a 134,000 gain the prior months, figures from the Roseland, New Jersey-based ADP Research Institute showed. Jobless claims decreased by 5,000 to 343,000 in the week ended June 29 from 348,000 the prior period, the Labor Department said.

Stock-index futures trimmed earlier losses following the better-than-projected ADP data. The contract on the Standard & Poor’s 500 Index maturing in September fell 0.3 percent to 1,602.4 at 8:55 a.m. in New York. It had been down as much as 0.8 percent on mounting political unrest in Egypt.

Bloomberg survey estimates for the trade figures ranged from deficits of $35.9 billion to $45 billion. The Commerce Department initially reported a $40.3 billion shortfall for April. The 12.1 percent increase in the gap in May was the biggest jump in two years.

Imports  climbed 1.9 percent from April’s $227.7 billion. Purchases of mobile phones and other household goods surged by $1.89 billion, demand for automobiles and parts reached a record and purchases of crude oil and petroleum products also rose.
American Demand

The increase is another sign the American economy is gaining speed as consumer spending has held up amid a payroll tax increase at the start of 2013.

Automobiles remain a bright spot. General Motors Co. (GM) and Ford Motor Co., makers of the best-selling big pickups in the U.S., yesterday said new-vehicle deliveries in June topped estimates. The industry selling pace accelerated to the fastest since November 2007.

Orders placed with U.S. factories rose in May, reflecting broad-based gains that signal manufacturing is stabilizing. The improvement may also underpin the need for imports.

Stabilization in the rest of the world would also lift overseas demand. Caterpillar Inc. (CAT), the largest maker of construction and mining equipment, is among American companies counting on an improvement.
‘Getting Better’

“The scope for construction in the U.S. and in Europe to get better is enormous,” Michael DeWalt, director of investor relations for the Peoria, Illinois-based company, said at a June 5 conference. “If you look at the three biggest end markets, U.S., Europe in general and China, with the exception of Europe, I think they’re getting better but they have a lot of room to grow.”

American exports decreased 0.3 percent to $187.1 billion, reflecting swings among typically volatile categories. A $1.13 billion slump in gold purchases from foreign buyers was tempered by a $1.37 billion surge in demand for civilian aircraft. Sales of jewelry and gems also slackened.

After eliminating the influence of prices, which renders the numbers used to calculate gross domestic product, the trade deficit widened to $52.3 billion, the highest since November. The jump will probably prompt economists to cut second-quarter growth forecasts.

The trade gap with China, the world’s second-biggest economy, grew to $27.9 billion from $24.1 billion, today’s report showed.
China Rebound

The conditions are in place for China to achieve its growth targets this year, China Central Television reported this week, citing Premier Li Keqiang. The nation’s growth has stayed below 8 percent for the past four quarters, the first time that has happened in at least 20 years.

Oil prices have been stable, reducing pressure on the value of imports. Brent crude traded on the ICE Futures Europe exchange in London at an average $103.3 a barrel in May, little-changed from April, and closed at $104 yesterday.

At the same time, a stronger U.S. currency makes American exports less attractive to overseas buyers. The Dollar Index, used by IntercontinentalExchange Inc. to track the greenback against currencies of six U.S. trading partners, has gained 5.6 percent through yesterday from this year’s low on Feb. 1.

Category: General Update