World Economy
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US Trade Deficit Grows as High $ Hurts Exports

US Trade Deficit Grows as High $ Hurts ExportsUS Trade Deficit Grows as High $ Hurts Exports

The US trade deficit widened slightly in May, reflecting declines in sales of American-made aircraft and machinery as exports continued to suffer from a strong dollar.

The deficit increased 2.9% to $41.9 billion in May, up from an April imbalance of $40.7 billion, the Commerce Department reported Tuesday, NewsNow reported.

Imports fell 0.1% to $230.5 billion. Exports slid at a faster pace of 0.8% to $188.6 billion. American producers have been hurt this year by the rising value of the dollar, which makes US goods less competitive in overseas markets.

Even with the slight rise in May, the deficit over the past two months is averaging less than in the first quarter. That should help support economic growth in the second quarter, analysts said.

“The US economy is doing better than the global economy,” said Gus Faucher, vice president at PNC Financial Services Group Inc. in Pittsburgh. “Trade is going to be a drag, but the domestic economy is strong enough and the US economy will continue to grow at an above-trend pace.”

 Economy in Reverse

Trade cut nearly 2 percentage points off growth during the first three months of the year. The big drag from trade combined with an unusually severe winter sent the economy into reverse, contracting at an annual rate of 0.2% in the January-March period.

Analysts believe that a narrowing of the trade deficit in the April-June period will be a major factor in reviving overall growth. They forecast a rebound to an annual growth rate of around 2.5%, as measured by the gross domestic product, in the second quarter.

Analysts think going forward, solid job gains will bolster GDP growth even more in the second half of this year to around 3%.

Paul Ashworth, chief US economist at Capital Economics, said the dollar’s rise in value over the past 12 months will likely mean that trade will remain a small drag on the economy for the rest of this year. But he added that with the dollar’s increase slowing in recent months, its drag on growth should fade in 2016.

 Trade Deficit

The deficit with China jumped 15% in May to $30.5 billion. So far this year, it is running 11.1% higher than the same period a year ago, putting the country on track to hit another annual record. America’s trade deficit with China is its largest with any country.

In May, the United States ran a rare trade surplus with its biggest trading partner, Canada. The $644 million surplus was the first monthly surplus with Canada going back to 1990.

Financialtribune.com