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June 10, 2006

US trade deficit widens

 
June 10, 2006

WASHINGTON: The US trade deficit widened 2.5 per cent in April to $63.4 billion as imports of oil and cheap goods from China rose, the government said on Friday.

The US trade performance was better than expected by economists, who had predicted an April figure of $65 billion. The March deficit came to a revised $61.9 billion.

The rise came after two consecutive months of falls, and left the deficit at its highest level since the start of the year. The dollar dipped on the news, slipping to 1.2662 against the euro in early New York trade from 1.2651 late on Thursday. April imports rose $1.3 billion from March to $177.8 billion, while exports fell $0.3 billion to $115.9 billion, the Commerce Department said.

The deterioration was largely due to a 1.44-billion-dollar increase in the US bill for imported oil, which rose to 23.8 billion dollars during a month when crude prices hit new records over 75 dollars a barrel.

The deficit with China widened 9 per cent to 17 billion dollars as the US economy sucked in more imports of apparel, toys and household electronics.

The US trade gap with Canada, a major oil exporter, jumped 15 per cent to 6.1 billion dollars and with Japan, it rose 2.6 per cent to 7.8 billion dollars. But the US deficit with the European Union shrank 7 per cent to 9.4 billion.

“Surging sales of Chinese consumer goods are pushing up the trade deficit,” University of Maryland business professor Peter Morici said.

“The trade deficit, along with higher gasoline prices and the flagging housing sector, will slow GDP (gross domestic product) growth in the second and third quarters,” he said.

“All of this makes more difficult the challenges faced by Fed (Federal Reserve) chairman Ben Bernanke,” Morici added. The US central bank faces a delicate challenge in keeping a lid on inflationary pressures without choking off economic growth, which Bernanke says will slow later this year.

Analysts

are divided about whether the Fed will raise US interest rates for a 17th time running when it meets on June 28-29, although recent tough talk from Bernanke on inflation has raised the odds on a hike. Other economists were more sanguine about the April trade report.

While higher, the deficit was below its average of the first quarter, Nomura US chief economist David Resler said. That suggested that “the trade accounts could provide a bit of a boost to GDP growth and offset some of the effect of an apparent slowdown in consumer spending”, he said.

“The slowdown in consumer spending should continue to restrain the growth in non-oil imports in the months ahead,” Resler added. Imports of capital goods rose in April to a record 34.5 billion dollars.

On the export side of the ledger, US exports of services hit a record 33.8 billion dollars. US shipments of minerals, chemical products and raw materials also rose. US sales of civilian aircraft, however, fell 10 percent to 2.8 billion dollars.