June 8, 2012 / 2:53 PM / in 5 years

Trade deficit narrows as global demand slows

A truck transports a container into a port of Miami, October 4, 2007. REUTERS/Carlos Barria

WASHINGTON (Reuters) - The trade deficit narrowed in April as slower growth in Europe and China bit into exports and the soft economy clipped import demand, a government report showed on Friday.

The trade gap shrank 4.9 percent to $50.1 billion, with exports falling 0.8 percent from last month’s record level to $182.9 billion, the Commerce Department said.

Imports dropped 1.7 percent to $233.0 billion.

Both imports and exports were still the second-highest on record. But with Europe teetering on the edge of recession, some analysts saw trouble ahead for overseas sales, which have been a driver of economic growth.

“With the euro zone crisis set to rumble on for some time yet, exports to the euro zone are only likely to fall further,” said Paul Dales, senior economist at Capital Economics in Toronto.

“The upshot is that net trade is unlikely to add much to GDP growth this year and may even subtract from it,” he said.

However, revisions to earlier trade data suggested economic growth in the first quarter was stronger than previously estimated. UBS Securities said GDP growth would likely be revised up to a 2.3 percent annual rate from 1.9 percent.

Exports to the 27-nation European Union fell 11.1 percent in April to $22.3 billion, but for the first four months of 2012 were 3.5 percent above the same period last year. The EU was the United States’ second-largest export market last year.

President Barack Obama, up for re-election in November in a race that could turn on the health of the economy, said on Friday that European leaders face an “urgent need to act” to resolve the region’s sovereign debt and banking woes.

Stocks got a lift from a report that Spain was set to seek EU funds to pump into its troubled banks. Worries about Europe have hung over financial markets in recent weeks, and uncertainty over the outlook has increasingly been cited by analysts as a factor weighing on the recovery.

A sharp slowdown in job creation has amplified worries about the direction of the economy. Economists are debating the degree to which the slowdown is temporary or a reflection of fundamental economic weakness.

Fed Chairman Ben Bernanke said on Thursday the question of whether labor markets were poised for improvement would be the main one for policymakers at the central bank when they meet on June 19-20. Many analysts expect the Fed to ease monetary policy further this month, although others expect it to take a wait-and-see approach.

A second Commerce Department report showed wholesale inventories rose a greater-than-expected 0.6 percent in April to a record $483.5 billion.

Business inventories added only 0.21 percentage point to economic growth in the first quarter, but Friday’s report suggests they will be a bigger factor in the second.

Economists see GDP advancing about 2 percent in the second quarter. Some tweaked their forecasts after the data, with the slightly wider-than-expected trade gap in April detracting from growth estimates, but inventories adding a bit.

EXPORTS TO CHINA ALSO LOWER

Exports to China, where growth is also slowing, fell 14 percent in April. On Thursday, China’s central bank cut interest rates for the first time since the global financial crisis in a bid to bolster growth.

China has been one of the fastest-growing markets for goods, and exports to that country were up 4.3 percent for the first four months of 2012.

The drop in overall exports in April mainly reflected less foreign demand for capital goods, such as aircraft, drilling equipment and machinery, and industrial supplies and materials, which range from cotton to chemicals.

Commerce Secretary John Bryson put the best face on the data, noting that “despite a variety of global economic challenges, exports in the first four months of 2012 continue to exceed their performance of 2011.”

The value of imports fell despite an increase in the average price of imported oil to $109.94 per barrel, the highest since August 2008. The volume of oil imports also rose slightly.

Oil prices have fallen sharply in recent weeks, suggesting the nation’s energy import bill could drop.

Imports from the EU slipped 11.1 percent to $31.0 billion, while imports from China rose 4.8 percent to $33 billion. By category, capital goods and industrial supplies and materials led the import decline.

The United States imported a record $5.5 billion worth of goods and services from South Korea in April. A free trade pact between the two countries went into force on April 15.

Editing by Andrea Ricci and Dan Grebler

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