Mon, Aug 06, 2012 - Page 15 News List

US trade deficit cut due to oil, not recovery: experts

JUST A SIDE EFFECT:The decrease was the largest in four months, but analysts said it was due to the falling price of oil and stressed that global trade was not recovering

Bloomberg

The Wall Street sign near the front of the New York Stock Exchange is seen last year on Aug. 5 last year.

Photo: AFP

The trade deficit in the US probably shrank in June as cheaper oil reduced the import bill and slower global growth led to reduced demand for US goods, economists said ahead of a report this week.

The gap narrowed to US$47.5 billion, the smallest in four months, from US$48.7 billion in May, according to the median forecast of 59 economists surveyed by Bloomberg News before the US Department of Commerce issues the data on Thursday. Another report may show worker productivity rose and labor costs eased in the second quarter.

Slowing economies in Europe and Asia means customers overseas may cut orders to US manufacturers, depriving the expansion of one of its mainstays. In the US, unemployment that has exceeded 8 percent for 42 straight months may prompt consumers to slow purchases of goods made abroad.

“Trade had definitely made an outsized contribution thus far in the economic cycle, but that phase is rapidly drawing to a close,” said Carl Riccadonna, a senior US economist at Deutsche Bank Securities Inc in New York. “Global trade has been slowing. Imports are not booming by any stretch.”

The strain on exports comes as countries in Europe teeter near recession and the Chinese expansion cools. The UK’s economy shrank 0.7 percent in the second quarter, the most since 2009, a British government report showed on July 25.

China’s growth slowed to the weakest pace since 2008, expanding 7.6 percent last quarter from a year earlier, the National Bureau of Statistics of China said on July 13.

Slower global economies help explain why shares of equipment makers have lagged behind the broader market.

“Our guidance for the full year really constitutes a recalibration of global growth prospects,” Eaton CEO Sandy Cutler said during a July 23 earnings call. “Global growth has clearly slowed, and the European and Chinese recovery, we think, has pushed out of 2012.”

The Cleveland-based company projects its markets, including electrical, hydraulics, auto and aerospace parts, will expand 8 percent in the US this year while dropping 1 percent in the rest of the world, Cutler said.

On the other end of the trade ledger, retreating oil prices probably restrained the value of imports in June. The cost of imported petroleum decreased 11 percent from the prior month, the biggest decline since December 2008, the Labor Department said on July 12.

Oil prices started to rebound last month and a sustained pickup may hurt consumers’ buying power. Brent crude on the ICE Futures Europe exchange in London rose as high as US$109.13 a barrel on Friday last week, up from a low this year of US$88.49 on June 21.

The cost of all imported goods rose 0.1 percent last month after falling 2.7 percent the prior month, economists surveyed projected a US Department of Labor report on Friday this week will show.

Imports may be limited as the US labor market struggles. The jobless rate unexpectedly rose to 8.3 percent last month from 8.2 a month earlier, Labor Department figures showed on Friday. A 163,000 gain in payrolls followed a 64,000 increase in June.

On Wednesday, Labor Department figures may show the productivity of US workers grew at a 1.4 percent annual pace from April to June after dropping 0.9 percent in the first quarter, according to the median estimate in a Bloomberg survey. The report may also show expenses per employee rose at a 0.5 percent rate after a 1.3 percent first-quarter increase.

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