US trade deficit narrows as exports surge
WASHINGTON (AFP) — The US trade deficit narrowed slightly in July to 59.2 billion dollars from a revised 59.4 billion dollars in the prior month as a weak dollar boosted exports, the government said Tuesday.
The Commerce Department report, which was generally in line with market expectations, showed US exports rose by 3.6 billion dollars in the month, outpacing a 3.4-billion-dollar increase in imports.
The increased exports are likely to add momentum to US economic growth during the third quarter.
"With domestic spending under pressure, as housing continues to decline and consumer momentum slows, strong export growth is crucial to keep the US economy moving forward," said Nigel Gault, an economist at Global Insight.
Economists said the acceleration in exports, which was led by aircraft, cars and telecom equipment, was in part fueled by the weak dollar which has tumbled in value against other major currencies.
The surge in exports helped offset rising oil prices which otherwise could have widened the deficit as America is the world's biggest importer of crude oil, analysts said.
The politically sensitive trade deficit with China totalled 23.8 billion dollars, marking its second highest on record after a gap of 24.4 billion in October 2006.
This was up from 21.2 billion in June and represented 40 percent of the total trade decifit.
The deficit with China has prompted calls in Congress for China to revalue its currency which is viewed by some lawmakers as artifically low, but US administration officials argue the best way to open China to more investment and trade is through talks.
Oil was a big factor in the trade gap, with the bill of 20.3 billion dollars for oil imports the second highest on record. The average price per imported barrel was up 7.6 percent in July to 65.56 dollars.
The report was released as Federal Reserve chairman Ben Bernanke addressed the large US balance of payments deficit which includes both trade and investment flows.
Bernanke said in a speech in Germany that the payments deficit "cannot persist indefinitely" but said for now it was not an unduly large burden for the American economy.
Some analysts, however, said the narrowing trade deficit could help counter-balance the financial turbulence whiplashing US markets and the economy which is already reeling from a persistent housing market downturn.
"Strength in trade is expected to be an important offset going forward to weakness in the domestic economy resulting from the recent financial market turmoil," economists at RBC Financial Group said in a briefing note to clients.
Over the first seven months of the year, the trade gap was 414.51 billion dollars, down from 449.84 billion in the same period in 2006. That puts the US on track for the first decline in the trade deficit in six years.
The trade picture was marked by a 2.7 percent rise in exports to a record 137.7 billion dollars, led by big orders for civilian aircraft.
Civil aircraft exports were up 1.2 billion dollars and capital goods exports were strong across the board, a product of the weak dollar and global economic growth.
The weak dollar also helped fuel increased exports of food and other products.
The goods deficit fell 300 million dollars from June to 68.1 billion, and the services surplus decreased 100 million to 8.9 billion.
The trade gap along with investment flows creates outflows of dollars that puts pressure on the US currency.
