Market Commentary and Intraday News

Ahead of the Bell: US Trade Deficit

317 days ago

(AP:WASHINGTON) The U.S. trade deficit likely narrowed slightly in May, helped by a sharp decline in oil prices that reduced the amount spent on imports.

Economists forecast that the trade deficit declined to $49 billion from $50.1 billion in April, according to a survey by FactSet. The Commerce Department will release the report at 8:30 a.m. Eastern time Wednesday.

In April, the deficit shrank only because a big drop in imports offset the first decline in U.S. exports in five months.

The trade gap remains wide. A wide trade gap acts as a drag on economic growth because it means the United States is spending more on foreign-made products than the country is taking in from sales of U.S.-made goods.

U.S. exports hit a record level in March. But they fell in April. Exports to the 27-nation European Union dropped 11.1 percent, adding to worries that Europe's debt crisis has worsened in recent months. Europe accounts for almost one-fifth of U.S. exports.

Growth has also slowed in emerging market countries. Exports to Brazil fell 8.2 percent in April.

Economists say a weakening global economy is dampening demand for American-made goods. Many parts of Europe are already in recession. China and many other emerging-market powers are also seeing slower growth as well.

The decline in exports has hurt U.S. factories this spring.

In June, U.S. manufacturing shrank for the first time in nearly three years, according to a survey by the Institute for Supply Management. The trade group of purchasing managers noted that exports declined and new orders plunged.

The U.S. economy grew at a tepid annual rate of 1.9 percent in the January-March quarter. Economists predict growth hasn't increased since then and may have slowed further.

Growth of 1.9 percent is not enough to significantly lower the unemployment rate, which stayed at 8.2 percent in June.

High unemployment is also putting pressure on U.S. politicians to protect American workers against what critics see as unfair trade practices from such nations as China.

During a campaign swing through Ohio last week, President Barack Obama announced that his administration was launching an unfair trade complaint against China with the World Trade Organization involving U.S. auto exports. The administration contends that tariffs the Chinese are imposing on American-made cars being shipped to China were a violation of WTO rules.

Republican presidential candidate Mitt Romney has charged that Obama has not been aggressive enough in pursuing China's unfair trade practices.

China reported Tuesday that its trade growth slowed in June, hurt by weak demand in the United States and Europe. Beijing reported that China's exports to other nations slowed in June compared to the May pace. The country also imported fewer products from other nations as Chinese factories facing weak foreign orders cut their purchases of raw materials.

Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

View all of today's news »