US trade gap widens, jobless claims still high

Analysis

Record oil import prices propelled the US trade deficit to a 16-month high in July, but a sharp price drop in August promised narrower deficits in future months, government reports showed on Thursday.

In sign of continued weakness in the US labor market, the number of US workers collecting jobless benefits shot up by 122,000 to 3.53 million in the week ended Aug 30, the highest level since October 2003. Financial market traders mostly ignored the reports, focusing instead on the fate of the beleaguered financial services firm Lehman Brothers and a drop in crude oil futures prices toward $100 per barrel.

The monthly trade gap swelled to $62.2 billion, the largest since March 2007, as average oil import prices leapt 6.4% to $124.66 per barrel and the volume of oil imports jumped 15% to 342 million barrels, the highest since June 2004. Oil futures contracts traded above a record $147 per barrel in July, supported by tensions over Iran’s nuclear program, the weak US dollar and oil supply concerns coupled with strong emerging market demand.

The US petroleum import bill hit a record $51.4 billion that month, propelling imports of goods and services up 3.9% to a record $230.3 billion, the Commerce Department said. But more recent data from the Labor Department showed oil import prices dropped 12.8% in August, the steepest decline since April 2003, amid signs of slowing US and global economic growth.

US crude oil future prices have continued to sink in September and dropped nearly $2 on Thursday morning at the New York Mercantile Exchange on a combination of weak demand and a firmer US dollar. US stocks were up slightly on lower oil prices combined with hopes that authorities might work out a plan to stabilize Lehman Brothers.

Treasury bond prices rose in choppy trade. So despite the jump in the July trade deficit, “we know that number is going to come down in the very near future. ... You can almost overlook the trade deficit because of what has happened since,” said Marc Pado, US market strategist with Cantor Fitzgerald & Co in San Francisco. Roger Kubarych, chief US economist at European investment bank UniCredit, said "the speculative run-up in oil and other commodity prices ran its course this summer and the correction has been stunning in speed and magnitude."

Even so, US Commerce Secretary Carlos Gutierrez said the July trade data bolstered the Bush administration’s case for Congress to expand oil production in restricted areas. “We need to produce more of our oil instead of letting imports of petroleum from other countries be a drag on our economy,” Gutierrez said in an interview. At a time when “exports are driving the US economy,” Congress also should give them a boost by approving free trade agreements with Colombia, Panama and South Korea, he said.

 
ECONOMY STILL SOFT

Imports of autos and consumer goods declined slightly in July and two other categories -- food, feeds and beverages and capital goods -- rose only slightly in a sign that weakness in the US economy is crimping demand for foreign goods. Combined with strong growth in US exports, that shrank the non-petroleum deficit in July to its lowest since October 2002, while the petroleum deficit hit a record $43.4 billion.

Data on Thursday suggested the US economy remained weak. While first-time claims for jobless benefits fell 6,000 last week, analysts said the labor market was still soft. And retail sales data showed consumption moderating in August. US retail sales excluding cars rose O.4% in August, slowing from a 1% gain in July, a report by SpendingPulse, the retail data service of MasterCard Advisors, an arm of MasterCard Worldwide, showed.

Exports of US goods and services increased 3.3% to a record $168.1 billion in July, with industrial supplies and materials, capital goods, autos and auto parts and consumer goods all setting individual records. “US businesses continue to be competitive in world markets, which are still expanding on balance,” Kuybarch said. “Some slowdown is likely as global business activity tapers off and the impact of a stronger dollar curbs demand for US products. But that effect is certainly not evident in the July trade data,” he added.

The closely watched trade gap with China widened 16.1% to $24.9 billion in July and remained slightly ahead of last year’s record pace. “That just can’t continue. It weakens our economy, reflects the movement of US jobs to China and creates mounting debt that must be paid,” Sen Bryon Dorgan, a North Dakota Democrat, said in a statement. (Reuters)

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