Swelling US trade gap seen stunting Q2 GDP growth
By Steven Scheer
NEW YORK, July 17 (Reuters) - Asia's financial and economic turmoil continued to wreak havoc on the U.S. trade balance in May, with analysts saying that another big jump in the deficit will sharply dampen U.S. growth in the second quarter.
The Commerce Department reported on Friday that the trade deficit swelled 10.3 percent in May to a record $15.75 billion, up from a revised a $14.27 billion gap in April which was originally reported as $14.46 billion.
''There's no abatement in the shock to U.S. trade; it continues to worsen,'' said Ethan Harris, senior economist at Lehman Brothers. ''We've gone from Asia hemorrhaging to a slow bleed.''
Economists said they were slashing second quarter growth forecasts from around a 1.5 percent rate in the wake of the trade report and Thursday's data showing a drop in business inventories in May.
''The combination of weak inventories and trade data suggest 0.5 percent and perhaps no growth in the second quarter,'' Harris said.
That follows a robust 5.4 percent annualized gross domestic product growth rate in the first quarter.
The trade data came in even weaker than most economists had expected. A Reuters poll of economists forecast, on average, a $14.66 billion deficit.
''It's a strikingly weak number,'' said Primark Decision Economics senior economist David Kelly of the highest trade gap since the series began in January of 1992. ''I believe the U.S. economy shrank in the second quarter. I think we are going to report negative GDP.''
Imports increased 0.5 percent in May, while exports fell 1.3 percent despite a gain in aircraft exports. All of the trade gap widening was in goods, as the surplus the U.S. enjoys in services remained unchanged at $7.06 billion.
''Exports are down and imports are up. It's a sign that there's no demand abroad for U.S. goods and U.S. demand for foreign goods is strong,'' said Harvinder Kalirai, economist at I.D.E.A.
Economists said there was not all doom and gloom in the data.
The trade gap with Japan narrowed by 8.5 percent and the deficit with newly industrialized countries fell 4.4 percent. Some analysts noted that the biggest damage was not from Far East countries but from U.S. neighbors to the north and south.
The deficit with Mexico ballooned more than 19 percent to $1.52 billion -- its highest level in a year -- while the trade gap with Canada bloated some 39 percent to $1.46 billion.
The trade report, despite its expanding U.S. deficit and impact on the economy, drew muted response from both the dollar and U.S. Treasuries. The dollar moved fractionally higher and was at 139.35 yen at 0930 EDT/1330 GMT, while the 30-year bond's price eased slightly off early highs. The bond later fell, and was down 1/8-point at 105-12/32, but analysts said the selling was unrelated to the data.
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