13 July 2004, 17:00  U.S. Trade Gap Narrowed to $46 Billion in May After Exports Reached Record

The U.S. trade deficit narrowed in May for the first time in six months as exports surged to a record, led by aircraft, engines and other capital goods, a government report showed. U.S. imports also were a record. The $46 billion gap in goods and services trade followed a record deficit of $48.1 billion in April, the Commerce Department said in Washington. The 4.5 percent reduction in the deficit in May was the largest since October 2002. Exports increased as a drop in the value of the dollar made U.S. products cheaper abroad. At the same time, Japan and other countries are likely to grow faster this year. Foreign sales at U.S. manufacturers such as Boeing Co. and Parker Hannifin Corp. are improving as a result, which may help underpin the U.S. expansion.
``The trade deficit is topping out or close to it,'' Mark Vitner, a senior economist at Wachovia Corp. in Charlotte, North Carolina, said before the report. ``As consumer spending slows, the appetite for imports will be growing at a slower pace while the rest of the world is ramping up investment and importing U.S.- made capital goods. We should see a more favorable trade balance in the next couple of years.'' Even with the decline, the deficit so far this year is larger than it was in the first five months of 2003. Through May, the gap was $231 billion, compared with $208.7 billion a year earlier. For all of last year, the gap reached a record $496.5 billion. The trade deficit subtracts from estimates of gross domestic product because the goods and services come from elsewhere. At the same time, increased consumption and inventory building, even with imported goods, contribute to gross domestic product.
Economists had expected the deficit to remain at the $48.3 billion previously reported for April, according to the median estimate of 65 forecasts in a Bloomberg News survey.
Exports, Imports
Exports rose 2.9 percent to $97.1 billion in May, the biggest gain since they jumped 3.1 percent in March. Foreign businesses bought $28.8 billion worth of capital goods from the U.S., a 6.3 percent increase. Imports rose 0.4 percent for the month to $143.1 billion, led by automobiles and industrial supplies, including oil. The value of U.S. oil imports rose in May to $10.5 billion from $9.7 billion the previous month. The price of oil was $33.12 a barrel, up from $31. The May deficit with OPEC was a record 5.6 billion. Even so, imports of non-petroleum products were a record $106.3 billion. ``Strong U.S. growth is being reinforced by generally strong economies around the world,'' Larry Kantor, head of economics and market strategy at Barclays Capital Inc. in New York, said in a report to clients. U.S. gross domestic product is forecast to grow 4.5 percent this year, the fastest since 1999, according to the most recent survey of economists by Bloomberg News.
Japan's economy, the U.S.'s third biggest trading partner after Canada and Mexico, is expected to grow 3.2 percent this year, according to the median estimate of economists surveyed last month by Blue Chip Economic Indicators. The median forecast at the start of the year called for growth of just 2 percent.
Boeing
Boeing, the second-largest maker of commercial airplanes, won orders worth $1.2 billion for 10 7E7 airliners split between Britain's First Choice Holidays Plc and Italy's Blue Panorama, the first European customers for the aircraft, the Chicago-based company said last week. ``You can see the broad base of interest we have, it's clearly global,'' Michael Bair, a senior vice president at Boeing, said during a conference call with investors. Boeing delivered 14 of its other airplanes to foreign buyers in May, the most since November, compared with eight in April, according to figures posted on its Web site. Parker Hannifin, the world's largest maker of hydraulic equipment, said this week a 21 percent increase in orders from buyers outside North America contributed to a 24 percent advance in total bookings for the month of June compared with the same month last year. The Cleveland-based company said all regions reported year-over-year gains, according to a statement released last week on PR Newswire.
Auto, Consumer Goods Imports
Imports of autos and parts rose 2.4 percent in May to $19.4 billion. At the same time, U.S. imports of consumer goods fell 3 percent. U.S. imports of capital goods rose 0.2 percent. Imports of industrial supplies, which include chemicals and metals as well as oil, rose 3 percent to $31.8 billion. A drop in the value of the dollar may also be contributing to the gains in exports. A cheaper dollar makes U.S.-made goods less expensive to foreign buyers. The dollar has fallen more than 6 percent in the last two years against a trade-weighted basket of currencies from the nation's biggest trading partners, according to Federal Reserve figures. It has lost almost 10 percent of its value against the euro and 9 percent against the yen in the last year.
Other Countries, Regions
By region, the Commerce Department reported that the trade deficit with Japan narrowed to $5.5 billion from $6.4 billion. The trade gap with China widened to $12.1 billion from $12 billion. Imports from China, at $15 billion, were the second highest on record. Elsewhere, the trade deficit with Asia's newly industrialized countries narrowed to $1.3 billion from $1.8 billion. Exports to Singapore, part of that group, rose to $1.9 billion, the second highest on record. The deficit with Canada, the largest U.S. trading partner, narrowed to $4.8 billion from $5.6 billion. The gap with Mexico widened to $3.8 billion from $3.2 billion. The deficit with Western Europe narrowed to $8.2 billion from $10.1 billion///www.bloomberg.com

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