Trade gap grows to a record $21.3 billion

Oil prices contribute, as do increased imports of computers, machinery

The economy

July 21, 1999|By BLOOMBERG NEWS

WASHINGTON -- The U.S. trade deficit in goods and services widened to a record $21.3 billion in May as oil prices rose and U.S. companies stepped up purchases of computers, machinery and semiconductors from abroad, the government reported yesterday.

"It's another reflection of just how strong the domestic economy is," said Tim O'Neill, chief economist with Bank of Montreal and Harris Bank in Toronto. "It's also evidence of the still-modest recovery outside North America."

U.S. exports fell for the sixth time in seven months, helping the May deficit widen from April's $18.6 billion, the Commerce Department reported.

Contributing to the increase in the trade deficit was an increase in imports of capital goods that could lead to further U.S. productivity gains, holding down costs of products made in the United States, analysts said.

Corporate purchases of capital goods such as semiconductors and machinery rose 3.9 percent in May to a record $24.2 billion. The increase in that category was the largest since a 4.4 percent gain in December 1997.

Orders for Japanese microchip-making equipment, for example, were 33.7 percent higher in May they were a year earlier.

Rising trade deficits usually are a drag on the U.S. gross domestic product. May's rise in imported capital goods could prove to be just the opposite, however, because those imports will count as U.S. business investment when the government releases its first estimate of second-quarter GDP on July 29.

Ray Stone of Stone & McCarthy Research Associates in Princeton, N.J., raised his estimate of second-quarter GDP growth to 4.5 percent after the trade figures were released.

The investment "more than offsets" the reduction in growth from the rising trade deficit, Stone said.

The high level of imports is an "inflation coolant" for an economy strained by rising consumer spending, said Robert Dederick, an economic consultant for Chicago's Northern Trust Co. "If we were to produce all these goods at home, inflation would be on the rise here," he said. "This is a safety valve."

U.S. imports of petroleum products grew in volume in May as the price of crude oil rose to $14.54 a barrel, the highest since $16.05 a barrel in December 1997.

Most of May's 6 percent increase in auto imports came from U.S. factories south of the border. Imports of Mexican-made cars and trucks rose 11 percent in May. The increase, coupled with the rise in petroleum prices, pushed the trade deficit with Mexico, the nation's second-largest trading partner, up to a record $2.25 billion.

The U.S. trade deficits with China and with the 15 nations of the European Union also widened as imports rose faster than exports.

The merchandise deficit with Japan, the third-biggest U.S. commercial partner, fell 6.7 percent to $5.261 billion in May. The narrowing of the gap was "purely seasonal," said Christopher Low, chief economist at First Tennessee Capital Markets in New York.

Exports fell 0.8 percent to $77.6 billion during May, led by declining shipments of autos and consumer goods, after rising 1.5 percent in April.

Before April, exports last rose in October.

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