Trade Deficit in U.S. Probably Widened as Imports Increased to Meet Demand

Trade Deficit in U.S. Probably Widened as Imports Increased to Meet Demand

The U.S. trade deficit probably widened in December for the first time in four months as the cost of imported oil climbed, economists said before a report this week.

The gap grew to $40.2 billion from the $38.3 billion shortfall in November, according to the median of 58 estimates in a Bloomberg News survey ahead of the Commerce Department’s Feb. 11 report. Other figures may show consumer confidence climbed this month and claims for jobless benefits fell.

In addition to oil, imports may have also been boosted by the need to rebuild inventories at the end of the year after American consumers spent at a faster clip in the fourth quarter. At the same time, manufacturers like Caterpillar Inc. are enjoying sales gains overseas as demand picks up from customers in emerging economies, including China and Brazil.

“In order to rebuild inventories of consumer goods, you would expect to see stronger import growth,” said Jay Bryson, a global economist at Wells Fargo Securities Inc. in Charlotte, North Carolina. “Export growth remains pretty strong as most trading partners are experiencing solid rates of growth.”

With American factories churning out more goods to meet growing global demand, manufacturer shares have strengthened. The Standard & Poor’s Supercomposite Industrial Machinery Index, which includes manufacturers such as Caterpillar and Deere & Co., has jumped 64 percent in the past 12 months, almost three times the 23 percent gain in the broader S&P 500.

Spending Climbs

Consumer spending, which accounts for 70 percent of the U.S. economy, rose at a 4.4 percent annual pace in the fourth quarter, the biggest gain since in four years, according to Commerce Department figures.

China, set to become the world’s second-largest economy this year, expanded 9.8 percent in the fourth quarter from a year earlier. India grew 8.9 percent in the third quarter and Brazil, South America’s largest economy, advanced 6.7 percent.

Caterpillar, the world’s largest maker of construction equipment, posted fourth-quarter profit that topped analysts’ estimates as sales advanced in China, Australia and Latin America. The Peoria, Illinois-based company said 2011 sales will top $50 billion after coming in at $42.6 billion last year.

“Sales are improving in every region, and are at or near records in the developing world,” Mike DeWalt, director of investor relations at Caterpillar, said on a Jan. 27 teleconference. “Over the past quarter, we’ve become somewhat more positive about economic growth in the developed economies of North America, Europe, and Japan.”

Imported Oil

A product of stronger global growth is higher commodities costs. America’s energy bill may have increased at the end of the year, boosting the value of imports in the Commerce Department’s trade report. The price of imported petroleum climbed 3.9 percent in December from the prior month, and was up 14 percent from a year earlier, according to figures from the Labor Department.

Oil prices also partly reflect a weaker dollar, which is down 3.8 percent in the year to Jan. 28 against a basket of currencies of the U.S.’s leading trading partners. The dollar’s decline makes American-made goods cheaper for buyers abroad, boosting exports and helping generate more orders to U.S. manufacturers.

President Barack Obama, who has set a goal of doubling American exports by 2014, said last month in his State of the Union address that the U.S. has made progress.

Obama’s on Exports

“Already, our exports are up,” Obama said Jan. 25. “Recently, we signed agreements with India and China that will support more than 250,000 jobs here in the United States. And last month, we finalized a trade agreement with South Korea that will support at least 70,000 American jobs.”

Also on Feb. 11, the Thomson Reuters/University of Michigan consumer sentiment index may have increased as the economy showed more signs of picking up and stocks increased. The preliminary February reading rose to 75 from 74.2 in January, according to the Bloomberg survey median.

A Labor Department report on Feb. 10 may show fewer Americans filed initial jobless claims. New applications for unemployment benefits probably declined by 5,000 to 410,000 in the week that ended yesterday, according to the Bloomberg survey.

Bloomberg Survey

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Release Period Prior Median
Indicator Date Value Forecast
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Cons. Credit $ Blns 2/7 Dec. 1.3 2.5
Initial Claims ,000’s 2/10 5-Feb 415 410
Cont. Claims ,000’s 2/10 29-Jan 3925 3900
Whlsale Inv. MOM% 2/10 Dec. -0.2% 0.8%
Federal Budget $ Blns 2/10 Jan. -42.6 -60.0
Trade Balance $ Blns 2/11 Dec. -38.3 -40.2
U of Mich Conf. Index 2/11 Feb. P 74.2 75.0
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source: bloomberg.com