US trade deficit narrows on exports, cheaper oil

The US trade deficit narrowed slightly in May as lower oil prices and a rise in exports, including those bound for Europe and China, eased the pain of a slowdown in the broader economy. The gap shrank 3.8% to $48.7bn, the US Commerce Department said yesterday. Exports, which have been a key support for the economy since the 2007-2009 recession, climbed 0.2%, rising across categories from capital goods and industrial supplies to consumer goods. Imports fell 0.7%, dragged down by the drop in oil prices. Economists cautioned, however, the strength in exports was likely to wane given the weight Europe’s debt crisis was placing on the global economy. American companies slammed the brakes on hiring in the second quarter, a warning sign the recovery is faltering. Many economists think already anemic economic growth slowed further during the period, with companies hiring less due to fears over Europe’s crisis and US government plans for severe belt tightening in 2013. Earlier this month, a private survey showed activity at US factories declined in June, with new orders falling, including those for exports. The overall reading for the trade deficit was in line with expectations, and didn’t make a big impact on analysts’ views of second-quarter growth. “At least as of May the situation in Europe wasn’t leading to some kind of collapse in trade,” said David Resler, an economist at Nomura Securities in New York. The data did not appear to affect trading on Wall Street. US stocks fell modestly as investors awaited minutes of the Federal Reserve’s last policy meeting, hoping for clues on the likelihood of further monetary stimulus. A separate report from the Commerce Department showed wholesale inventories edged higher in May despite a big drop in stocks of oil. US exports to the 27-nation EU rose 2.6% in May to $22.9bn. The European Union collectively was the US’ second largest export market last year, and exports in the first five months of 2012 were 3% above the same period in 2011. Yesterday, Spanish Prime Minister Mariano Rajoy announced a swathe of new taxes and spending cuts, the latest round of austerity that will likely weigh on economic growth. US exports to China rose 5.2% in May. China has been one of the fastest growing markets for US goods, and exports to that country were up 6% for the first five months of 2012 from the year-ago period. Still, exports provide little more than a silver lining for America’s darkening growth outlook. Consumer spending drives about two thirds of the economy, and recent weakness in everything from retail sales to hiring has led many economists to downgrade their growth forecasts. Barclays yesterday slashed its forecast for second quarter growth to 1.5%, citing weak consumer spending, jobs growth and manufacturing. The economy expanded 1.9% in the first three months of the year. The sombre outlook extends to some US corporations. Engine maker Cummins cut its full-year sales forecast on Tuesday, while analysts are advising investors to brace for bad news when the biggest names in the US tech sector begin reporting quarterly earnings next week. Imports from China have been increasing at an even faster pace than exports, and the US trade deficit with China widened to $26bn in May from $24.6bn a month earlier. from gulf times.