Trade Gap in U.S. Probably Widened in April as Imported Oil Prices Climbed

Trade Gap in U.S. Probably Widened in April as Imported Oil Prices Climbed

The U.S. trade deficit probably widened in April to a 10-month high, reflecting higher crude oil costs that have since retreated, economists said before a report this week.

The gap expanded to $48.9 billion from the $48.2 billion shortfall in March, according to the median of 61 estimates in a Bloomberg News survey ahead of the Commerce Department’s June 9 report. Other figures may show prices of goods from abroad decreased in May by the most in almost a year, showing the surge in commodity costs is fading.

A drop in deliveries from Japan, where the earthquake and tsunami in March hampered shipments of auto parts and other components, may have prevented imports from climbing even more. While a weaker dollar has made American products more competitive for manufacturers like Dow Chemical Co. (DOW), a cooling in the world economy may limit U.S. exports in coming months.

“We are seeing a slowdown in global growth that should mean a slowdown in export growth,” said Julia Coronado, chief economist for North America at BNP Paribas in New York. “At the same time, in the second quarter we have pretty significant supply-chain issues that are going to weigh very heavily on imports.”

The rise in oil prices through April has taken a toll on demand in the U.S., recent reports have shown. Manufacturing grew in May at the slowest pace in more than a year, according to Institute for Supply Management data last week.

Housing, Spending
Home prices in 20 U.S. cities dropped in March to the lowest level since 2003, figures from the S&P/Case-Shiller showed on May 31. Consumer spending grew less than forecast in April, according to a Commerce Department report.

Employers in May added the fewest number of workers in eight months and the jobless rate unexpectedly increased to 9.1 percent, the Labor Department said on June 3.

The recent spate of data has pushed stocks lower and Treasuries higher. Since the end of April, the Standard & Poor’s 500 Index has declined 4.7 percent. The yield on the benchmark 10-year note, which moves inversely to price, dropped to 2.99 percent as of June 3 compared with 3.29 percent on April 29.

The price of oil, which makes up about 15 percent of U.S. imports, peaked in April when it reached the highest level since August 2008.

Oil Costs
Energy prices have since declined, a reason Labor Department figures on June 10 may show import prices decreased 0.7 percent in May from a month earlier, according to the Bloomberg survey median. It would mark the first drop since June 2010, after a 2.2 percent gain in April.

Federal Reserve Bank of Cleveland President Sandra Pianalto said she anticipates the recovery will proceed and that the boost in prices caused by commodities will ease going forward.

“I expect the economy to continue on a gradual recovery pace over the next few years, with annual growth just above 3 percent a year,” Pianalto said at a June 1 speech in Columbus, Ohio. “Inflation will be temporarily elevated this year due to developments in oil and food prices, but I expect inflation to fall back below 2 percent in the next couple of years.”

The Fed releases its regional Beige Book economic survey on June 8, which is published two weeks before each Federal Open Market Committee meeting.

Weaker Dollar
American companies have benefited from a weaker dollar, which has dropped about 10 percent in the 12 months through May against a weighted basket of currencies from the country’s biggest trading partners.

“The low dollar means we can export, so we are actually fundamentally growing globally from the U.S.,” Andrew Liveris, president and chief executive officer at Dow Chemical, said during a June 2 conference call. “We see strong growth drivers in emerging regions. China is the locus of growth.”

Dow, based in Midland, Michigan, also expects “a short- term boost in Japan as that country rebuilds from its recent tragic natural disaster,” Liveris said, referring to the Asian nation’s March earthquake and tsunami.

Bloomberg Survey

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Release Period Prior Median
Indicator Date Value Forecast
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IBD/TIPP Conf. Index 6/7 June 42.8 42.0
Cons. Credit $ Blns 6/7 April 6.0 5.0
Trade Balance $ Blns 6/9 April -48.2 -48.9
Initial Claims ,000’s 6/9 4-Jun 422 419
Cont. Claims ,000’s 6/9 28-May 3711 3700
BCCI 6/9 5-Jun -47.1 -47.3
Whlsale Inv. MOM% 6/9 April 1.1% 1.0%
Import Prices MOM% 6/10 May 2.2% -0.7%
Import Prices YOY% 6/10 May 11.1% 11.2%
Federal Budget $ Blns 6/10 May -135.9 -150.0
==============================================================

source: bloomberg.com