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U.S. Economy: Trade Deficit Widens More Than Forecast

U.S. Economy: Trade Deficit Widens More Than Forecast (Update3)

By Joe Richter

May 10 (Bloomberg) -- The U.S. trade deficit widened more than forecast in March as higher oil shipments drove the biggest increase in imports in more than four years.

The deficit rose 10.4 percent to $63.9 billion, the Commerce Department said today in Washington. Imports and exports were the second highest on record. Climbing fuel costs also pushed the price of foreign goods higher for a third month in April, the Labor Department reported separately.

The U.S. imports two-thirds of its oil and the biggest rise in crude prices since June is offsetting the benefit to U.S. exports from a weaker dollar. A more competitive exchange rate and expanding economies in Europe and Asia have trimmed the deficit from a record $68.9 billion in August.

``We were paying sharply more in March for imported oil, and frankly that's only going to contribute to a lot more red ink in April,'' said Stuart Hoffman, chief economist at PNC Financial Services Group in Pittsburgh.

The trade shortfall with China narrowed to $17.2 billion in March from $18.4 billion a month earlier. Imports from China were the lowest since May 2006 while exports were a record.

The trade picture with China ``is still a big mess,'' said Peter Morici, an economics professor at the University of Maryland in College Park. ``There's not going to be much improvement.''

Year to Date

Through the first three months of the year, the deficit with China climbed to $57 billion, up from $47.3 in the same period last year and accounting for almost a third of the overall gap.

The wider shortfall will probably lead the government to revise down its estimate of first quarter economic growth. Economists at Morgan Stanley forecast revised figures will show the economy grew 0.9 percent in the first three months of the year, compared with the government's advance estimate of 1.3 percent issued last month.

``We saw a big increase in oil imports, but in general growth in the U.S. is slowing and we should see import growth moderating,'' said Jay Bryson, global economist at Wachovia Corp. in Charlotte, North Carolina. ``As we look forward, trade should be less of a drag because of global demand for U.S. exports.''

The dollar fell in the minutes after the release of the trade figures before recovering.

Jobless Claims

A further report today from the Labor Department showed the number of first-time claims for jobless benefits dropped 9,000 to 297,000, the fewest in almost four months. The figures suggest firms are firing fewer workers even as the economy slows.

Economists had forecast the trade deficit would widen to $60 billion, from an originally reported $58.4 billion in February, according to the median of 78 estimates in a Bloomberg News survey. Estimates ranged from $56.8 billion to $62 billion.

Imports of goods and services rose 4.5 percent in March, the biggest increase since November 2002, to $190.1 billion. Imports of industrial supplies, which include petroleum, rose to $49.1 billion from $44.1 billion.

Imports of petroleum products rose to a seasonally adjusted $24.6 billion from $20.9 billion a month earlier. Crude oil futures traded on the New York Mercantile Exchange climbed above $66 a barrel in March for the first time since early September. Crude futures averaged $60.74 a barrel in March, compared with $59.39 in February.

Consumer Goods Imports

Shipments to the U.S. of consumer goods rose to a record $40.1 billion from $39.4 billion. U.S. consumer spending stayed strong enough in March to sustain demand for goods imported from China and other countries, economists said. Retail sales in the U.S. rose in March by the most in three months, driven by rising incomes and mild weather.

Exports rose 1.8 percent to $126.2 billion in March from $124 billion a month earlier, led by record sales of industrial supplies and autos.

China, the second-largest U.S. trading partner, says it is trying to curb its trade surplus by easing import restrictions and reducing export incentives.

Some U.S. lawmakers say an undervalued Chinese currency is to blame for a trade gap between the two nations that widened to a record in 2006 for a fifth straight year. U.S. Treasury Secretary Henry Paulson on May 2 said he was concerned that the yuan's value is rising ``very slowly.'' Paulson also said it will take more than a stronger Chinese currency to reduce the record trade deficit between the two countries.

Weaker Dollar

A weaker dollar may chip away at America's total trade gap by making U.S. goods cheaper abroad. During the 12 months ended in April, the dollar fell 3.1 percent against a trade-weighted basket of currencies of its biggest trading partners. It reached a record low of $1.3681 against the euro on April 27.

A slowing U.S. economy and faster growth among U.S. trading partners also point to a stabilizing trade gap, economists said.

Consumer spending may rise at an annual rate of 2.3 percent this quarter, and will grow 2.5 percent in the next three months, based on the median estimate economists surveyed by Bloomberg April 30 through May 8. Such spending grew 3.7 percent the past decade.

Growth abroad is driving demand for exports from companies such as St. Paul, Minnesota-based 3M Co., the maker of products ranging from Post-it Notes to road signs. 3M said rising revenue in China and India lifted first-quarter profit.

``International sales growth was very strong,'' 3M Chief Executive Officer George Buckley said on an April 26 conference call with analysts and investors. ``There are very few pockets of weakness.''

Sales Abroad

Revenue surged 30 percent in China and 25 percent in India, Buckley said. Sales rose 12 percent in Latin America, almost 20 percent in the U.K., and 44 percent in Russia.

The U.S. economy expanded at an annual rate of 1.3 percent last quarter, the slowest in four years, the Commerce Department said last month. Economists surveyed by Bloomberg News this month expect U.S. growth to average 2.1 percent in 2007. That compares with the International Monetary Fund's prediction in April of a 4.9 percent global expansion.

Helping drive demand for both imports and exports is so- called related-party trade, goods exchanged between companies in the U.S. and their parents or subsidiaries overseas. Such transactions accounted for 41 percent of total goods trade in 2006, the Commerce Department said today.

The shortfall with Japan was little changed in March at $7.1 billion. The deficit with the European Union widened to $7.7 billion from $6.4 billion.

The trade gap with Canada widened to $5.7 billion from $4.7 billion. The deficit with Mexico widened to $6.7 billion from $5.1 billion.

To contact the reporters on this story: Joe Richter in Washington at Jrichter1@bloomberg.net