More Details on the May Trade Deficit

[HenryTo]

This Reuters article goes into a little bit more detail on the exports/imports numbers of the latest U.S. trade deficit number:
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U.S. trade gap unexpectedly shrinks 2.7 pct in May
Wednesday 13 July 2005, 12:58pm EST

By Doug Palmer

WASHINGTON, July 13 (Reuters) - The U.S. trade deficit narrowed unexpectedly in May to $55.3 billion as exports set another new record and a short-lived drop in oil prices kept imports from reaching a new high, a government report showed on Wednesday.

The smaller-than-expected trade gap suggested stronger U.S. economic growth in the second quarter than previously forecast and was likely to keep the Federal Reserve on a path of steadily rising interest rates, analysts said.

"This will mark up our Q2 growth number a bit, perhaps towards 3.4 percent and 3.5 percent," said Mark Zandi, chief economist with Economy.Com in West Chester, Pennsylvania.

"I think the Fed will look at this through the prism of growth. It argues that the Fed will continue to tighten policy with consumers continuing to spend aggressively and businesses investing aggressively," Zandi said.

The monthly trade gap narrowed about 2.7 percent from April according to the Commerce Department report, defying the median estimate of analysts surveyed before the report who expected it to remain mostly unchanged at about $57.0 billion.

The deficit was still within sight of the $60.1 billion record set in February, which some analysts expect will be broken in coming months, and it is on track to break last year's record of $617.6 billion. But the unexpected narrowing in May helped boost the value of the dollar in early trading.

The greenback rallied after the trade data eased concerns about U.S. external financing problems. U.S. Treasury debt prices receded after trade deficit data.

The trade shortfall with China, a hot-button issue in the U.S. Congress, swelled 7.1 percent in May to $15.8 billion. That was offset by narrower trade gaps with Japan, Canada, Britain and France.

Meanwhile, the White House on Wednesday slashed its forecast of the fiscal 2005 federal budget deficit by nearly $100 billion on the basis of unexpectedly large tax revenues in recent months. The new forecast put the 2005 deficit at $333 billion, down from the 2004 record high of $412 billion.


EXPORT BOOM

Rising U.S. interest rates have pushed the dollar higher in 2005, after a 30 percent decline over the three previous years that has helped push exports to current highs.

Exports in several key categories -- such as food, feed and beverages, consumer goods and industrial supplies and materials

-- rose slightly to records in May. U.S. exports of services also set a record, as did imports in that category.

Overall exports totaled a record $106.9 billion, up slightly from a revised estimate for April. It was the sixth consecutive month that U.S. exports have been above $100 billion since first passing that threshold in December.

U.S. imports remained near record levels at $162.2 billion, down less than 1 percent from the previous month.

Imports from members of the Organization of Petroleum Exporting Countries were a record $9.8 billion. Average prices for imported oil were the second highest on record in May at $43.08 per barrel, down from a record $44.76 in April.

With oil trading this week at above $60 per barrel, the narrower trade gap in May could be just a temporary retreat before it charges into new record territory.

"Together with surging oil prices, a stronger dollar will push the trade deficit to new record highs in the months ahead. The monthly trade deficit will likely exceed $70 billion by the end of the year," said Peter Morici, an economics professor at the University of Maryland.

A separate Labor Department report on Wednesday showed U.S. import prices rose 1.0 percent in June as petroleum prices rebounded after a decline in May.

Petroleum import prices surged 7.6 percent in June, while prices in the sector were up 37.6 percent in latest 12 months.

Non-petroleum import prices dropped 0.4 percent -- the largest decline since April 2003 -- building on May's 0.2 percent dip. It was the first time prices for non-petroleum imports fell for two straight months in more than two years.

Imports from Germany and the entire European Union also set records in May, while imports from Mexico were the second highest on record.