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Aug 12, 2010
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Wider US trade gap trims Q2 growth estimates

Published
Aug 12, 2010

WASHINGTON, Aug 11 (Reuters) - The U.S. trade gap widened a surprising 18.8 percent in June on a wave of consumer imports from China and other suppliers, suggesting U.S. second-quarter economic growth was weaker than previously thought.


Photo : Corbis

The monthly deficit jumped to $49.9 billion, the highest since October 2008, as imports rose 3.0 percent to $200.3 billion, the Commerce Department reported on Wednesday.

U.S. exports, which President Barack Obama has hoped would help drive economic recovery and job growth, fell 1.3 percent in June to $150.5 billion.

In financial markets, U.S. stocks slumped more than 2 percent, the dollar touched a 15-year low against the yen and yields on two-year U.S. government bonds posted a record low as the gloomy data combined with lower U.S. economic growth expectations and disappointing Chinese economic data.

The much-wider-than-expected gap prompted economists to scale back estimates of second-quarter U.S. economic growth, and reignited calls by some business and labor groups for Congress to get tough with China over its currency policy.

"June's U.S. international trade figures suggest that the U.S. economy cannot rely on a boost from overseas demand to offset the current domestic weakness. In fact, overseas effects are exacerbating the domestic downturn," said Paul Dales, U.S. economist with Capital Economics in Toronto.

In its first estimate of second-quarter gross domestic product growth late last month, the Commerce Department said the economy grew at a 2.4 percent annual rate in the April to June period.

On Tuesday, the Federal Reserve said the pace of U.S. economic recovery has slowed in recent months, resulting in the Fed -- the U.S. central bank -- outlining a plan to nurture growth by using cash from maturing mortgage bonds to buy more U.S. government debt.

The U.S. trade data was "spectacularly terrible" said Ian Shepherdson, chief economist with High Frequency Economics in Valhalla, New York, and he said it knocked 0.4 percentage point off their second-quarter growth estimate.

Others were even more glum. Harm Bandholz, chief U.S. economist at Unicredit Research, ratcheted his second-quarter GDP forecast down to just 1.0 percent based on the trade data, weaker construction spending and less inventory build-up.

U.S. stocks slumped on the gloomier Fed outlook and slower manufacturing growth in China that underscored the lackluster global economic recovery. Around noon (1600 GMT) all three major stock indexes .DJI .SPX .IXIC were down more than 2 percent.

The U.S. dollar fell to a 15-year low against the yen JPY= as yields on two-year Treasury debt hit a record low. However, the greenback rallied against other major currencies .DXY as world stocks fell, triggering a flight to safety.



MOVE TO BOOST EXPORTS

Obama, in a bid to spur manufacturing jobs, was scheduled to sign bipartisan legislation later on Wednesday temporarily suspending duties on a long list of raw materials U.S. manufacturers use to make finished goods.

The National Association of Manufacturers, a top industry group, has said the Manufacturing Enhancement Act of 2010 would boost U.S. manufacturing output by $4.6 billion and support about 90,000 jobs.

U.S. imports of goods and services in June were the highest since October 2008, fueled by record imports of consumer goods and an uptick in imports of other nonpetroleum products.

However, that sign of higher U.S. demand was tempered by the drop in U.S. exports.

Imports from China soared to $32.9 billion, the highest since October 2008. The closely watched U.S. trade deficit with the major East Asian manufacturer widened to $26.2 billion, also the highest since October 2008, while U.S. exports to China fell slightly.

The big jump in the U.S. trade deficit followed Chinese government data on Tuesday that showed China's trade surplus surged to $28.7 billion in July, an 18-month high.

Senator Charles Schumer, a New York Democrat, seized on that report to renew calls for legislation threatening China with duties on some of its exports to the United States.

Pressure on lawmakers to act could intensify in the run-up to the November congressional elections.

"The House and Senate must now step in and pass strong legislation to penalize China's currency manipulation and bring down our trade deficit," said Scott Paul, executive director of the Alliance for American Manufacturing.

However, some analysts said the June surge in imports from China was due to manufacturers and exporters there trying to ship as many goods as possible before July 15, when government export rebates were reduced.

China loosened its yuan currency from a nearly two-year peg to the dollar in June, but it has barely risen since then. Many lawmakers believe it is undervalued by at least 25 percent.

U.S. imports from Germany and the 27-nation European Union also had their strongest showing since October 2008.

Although U.S automotive exports were the highest since October 2008, other important export categories such as capital goods, industrial supplies and materials, and food, feeds and beverages posted declines.

A separate report showed U.S. home loan demand climbed last week but record low mortgage rates failed to light a fire in a market constrained by unemployment and tight lending.

Mortgage purchase and refinancing applications rose less than 1 percent in the first week of August, even as 30-year loan rates fell to 4.57 percent, the lowest in 20 years of record keeping by the Mortgage Bankers Association.

(Additional reporting by Emily Kaiser; Editing by James Dalgleish)


Source : Reuters

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