The US trade deficit narrowed during May as oil imports fell, but analysts expect the imbalance to resume deteriorating, given the resurgence in the price for crude.
The US shortfall in international trade of goods and services shrank to $55.35 billion from a slightly revised $56.90 billion in April, the Commerce Department said.
US exports rose slightly and reached a new record, while imports fell as the cost per barrel of oil dropped in May.
“The narrowing trade deficit was largely the result of lower energy costs, which we already know have rebounded,” said Joel Naroff, president of Naroff Economic Advisors Inc. in Holland, PA
Crude-oil futures topped $60 a barrel on July 12. A Labor Department report showed petroleum import prices climbed 7.6% in June after falling 4.8% in May.
“Going forward, higher oil prices and a stronger dollar are likely to push the trade deficit up,” University of Maryland business professor Peter Morici wrote.
The dollar has been rising against some foreign currencies this year. The increase follows three years of depreciation, which hasn’t really improved the imbalance. After all, the gap opened 2003 at $41.22 billion.
A depreciating greenback means exports are cheaper in certain overseas markets while some imported goods cost more in the US. A rising dollar reverses those effects.
Trade deficit expected to widen as economy picks up speed
The main problem, according to James Glassman, an economist at J.P. Morgan Chase, is that the US economy is stronger than many of its trading partners. The result? The US is buying more than it is selling abroad.
An uncomfortable accumulation of inventories by US firms early this year led to an adjustment of stockpiles that dampened second-quarter economic growth, Glassman said.
“I expect the trade deficit will resume its widening trend as the US economy picks up speed,” he said. “I wouldn’t sell this as a stabilizing of the trade deficit.”
The 2.7% decline in the trade gap surprised some on Wall Street. The median forecast of 22 economists surveyed by Dow Jones Newswires and CNBC was for a deficit of $57.20 billion.
July 13th’s report showed imports fell 0.9% to $162.24 billion in May from $163.64 billion.
The value of crude oil imports dropped to $13.73 billion from April’s $14.04 billion as the average price per barrel fell by $1.68 to the second-highest ever, $43.08. The record, $44.76, was set in April.
The volume of crude imports rose to 318.63 million barrels from 313.81 million the previous month. The US paid $18.61 billion for all types of energy-related imports in May, down from $18.94 billion in April.
Industrial supplies purchases plunged by $2.36 billion, led by decreases in crude oil, natural gas, and iron and steel mill products.
Capital goods imports excluding autos declined $587 million, led by telecommunications equipment and semiconductors. Auto and related parts imports increased by $1.04 billion. Purchases of foreign-made consumer goods like pharmaceutical preparations rose by $233 million.
US exports advanced 0.1% to a record $106.89 billion in May from $106.74 billion. Capital goods sales dropped by $900 million as commercial aircraft demand fell sharply. Food exports were up $558 million. Consumer goods exports rose by $434 million as sales climbed for art and antiques. Sales abroad of industrial goods rose by $239 million. But auto and auto parts exports decreased by $151 million.
The US trade shortfall with China widened to $15.75 billion from April’s $14.72 billion. The trade gap with the euro area increased to $8.12 billion from $6.93 billion.
Trade is a component of US gross domestic product and therefore influences overall economic growth. May trade data will be included in the tallying of second-quarter GDP, which covers April through June and is due to be released July 29.
In the prior six quarters, trade took a chunk out of economic growth as increasing imports outpaced rising exports. Economists said the May data could am