Trade Deficit Lowest in 10 Years; Import Prices Jump

The U.S. trade gap narrowed unexpectedly to $26 billion in May to the lowest reading since November 1999 as exports rose despite weak global demand and imports shrank, government data on Friday showed.

The Commerce Department said exports increased 1.6 percent to $123.3 billion, while imports declined by 0.6 percent to $149.3 billion.

Analysts polled by Reuters had expected the trade deficit to widen to $30.2 billion in May. The trade gap in April was revised to $28.8 billion from a previously reported $29.2 billion deficit.

May's import level was the lowest since July 2004 and the 10th straight monthly decline, providing further evidence that the recession-mired United States has diminished as a source of demand for the rest of the world.

The auto sector has been hard hit in the economic slowdown and May imports of automotive vehicles and parts slipped to $10.2 billion, the lowest level since March 1996, while auto exports were the lowest since July 1998.

The monthly deficit on goods trade with China grew to $17.5 billion from $16.8 billion in April and was the largest with any single country.

But the U.S. trade deficit with other big trading partners declined, falling to $2.8 billion with the European Union in May, for the lowest reading since March 1999, and retreating to $1.9 billion with Japan, which was the lowest since February 1984.

Imported oil cost $51.21 a barrel in May, up from $46.60 in April. The value of crude oil imports in May declined only slightly to $13.4 billion, despite a sharper decline in the quantity of oil actually imported, to 262 million barrels from 293 million in April, the Commerce Department said.

Import Prices Also Surge

Separately, import prices jumped a steeper-than-expected 3.2 percent in June, largely because of rising oil prices, Labor Department data showed on Friday.

Economists polled by Reuters had expected a 2 percent increase in import prices, after a 1.4 percent rise in May that was initially reported as a 1.3 percent gain.

The increase for June was the largest since a matching 3.2 percent jump in November 2007. The last time the index recorded a bigger gain was in September 1990, when it rose 3.4 percent.

Import prices have risen for four consecutive months, but are still down for the year ended in June, largely because of volatile oil prices.

The Labor Department said petroleum prices rose 20.3 percent in June, the largest monthly advance since April 1999.

However, these prices are still down 45.9 percent over the past 12 months.

Oil prices have moderated somewhat in the last couple of weeks, but economists are keeping a close eye for any indication that price pressures may choke off the economic recovery expected to begin this quarter.

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