Trade gap widens unexpectedly, hits record

12/14/2005

Wednesday December 14, 9:10 AM EST
By Andrea Hopkins

WASHINGTON (Reuters) - The U.S. trade deficit widened unexpectedly in October to a record $68.9 billion despite a drop in the cost of imported oil, as the deficits with China, Canada, the European Union, Mexico and OPEC all hit records, government data showed on Wednesday.

Economists had expected the trade gap to shrink in October to $63.0 billion, and its surprising growth suggests fourth-quarter economic growth will likely be even weaker than first thought.

“The trade deficit certainly came in worse than expected,” said Bob Lynch, currency analyst at HSBC in New York. “It was largely energy influenced but I don’t think that should detract from the overall deterioration of the external balance. The dollar was already on the defensive this week and this data only reinforces that bias.”

The dollar extended losses against the euro and yen, while U.S. Treasury debt prices remained higher after the report.

The Commerce Department said the deficit widened 4.4 percent from September after growing 11.9 percent the previous month.

Imports of goods and services rose 2.7 percent to a record $176.4 billion while exports increased a smaller 1.7 percent to $107.5 billion, the second-highest on record.

While oil import prices declined in the month to an average $56.29 per barrel, the volume of crude imports surged 9.3 percent, driving the value to $17.1 billion, the second-highest on record. Imports of energy-related petroleum products, a wider category that includes propane and butane, hit a record $26.2 billion.

Imports of industrial supplies and materials and automotive vehicles and parts rose to records in October. Imports of consumer goods also climbed, while foods, feeds and beverages and capital goods fell.

Analysts said the strong pace of imports reflect robust business investment and hurricane rebuilding efforts.

“On the import side, the strength is from a rebuilding of inventories from companies and a general expansion of the U.S. economy. Petroleum imports increased, adding to the import bills,” said Lynn Reaser, chief economist at Banc of America Capital Management in Boston.

Trade through hurricane-damaged Gulf ports picked up in October. Imports rose $3.6 billion while exports climbed $1.3 billion, on a non-seasonally adjusted basis.

The politically sensitive trade deficit with China widened 2.1 percent to a record $20.5 billion as imports from that country rose 4.8 percent to $24.4 billion.

The increase in the deficit with China came despite a 10.9 percent drop in textile imports in October. Washington and Beijing reached a deal last month to rein in China’s surging clothing and textile exports to the United States through 2008. Textile imports from China are up 47.6 percent so far in 2005 compared to 2004.

The deficit with Canada, Mexico, the European Union and OPEC countries also widened to record levels.

Ten months into the year, the overall trade deficit reached $598.3 billion, just $19.3 billion shy of the record $617.6 billion deficit set in 2004.

More up-to-date information on the economy showed U.S. import prices eased last month, which could help ease the trade deficit in November. The Labor Department said import prices fell an unexpectedly large 1.7 percent last month on the back of the biggest decline in the cost of petroleum imports in almost a year.

Petroleum import prices skidded 8 percent in November, the biggest drop since last December, and nonpetroleum import prices slipped 0.2 percent, the first fall since July.

The report marked an easing in the inflation pressures stemming from high energy costs and may also have reflected a rise in the value of the dollar.

It also showed a surprise drop in prices received by U.S. exporters.

U.S. export prices fell 0.9 percent, the largest drop since December 1991, as nonagricultural export prices posted their biggest decline on records dating to January 1989 and agricultural export prices decreased for the third time in the past four months.

Wall Street economists had expected import costs to fall just 0.5 percent in November, with export prices up 0.2 percent. The department did, however, revise October’s import price figure upward to a gain of 0.3 percent from the previously reported 0.3 percent fall.