US international trade gap at $41.87 billion in May vs. $42.6 billion expected

Cranes load and unload shipping containers from the Evergreen Ever Smile and Ever Learned ships at the Port of Los Angeles.
Patrick T. Fallon | Bloomberg | Getty Images

The U.S. trade deficit widened in May, fueled by a drop in exports that could heighten concerns over weak overseas demand and a strong U.S. dollar.

The increase in the trade gap to $41.9 billion, announced on Tuesday by the Commerce Department, was less than analysts had expected. That suggests Wall Street economists, who expected a $42.6 billion deficit, might raise slightly their forecasts for economic growth in the second quarter.

But the drop in exports in May highlights a change in America's recovery from recession in which the economy has relied more on domestic drivers like construction and services, rather than export-led industries such as manufacturing.

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Led by a drop in overseas sales of U.S.-made capital goods, exports fell $1.5 billion in May, or 0.8 percent, to $188.6 billion. Imports fell by about $300 million, or 0.1 percent, to $230.5 billion.

Since the middle of last year when the Federal Reserve made clear it was planning to raise interest rates, the dollar has strengthened, making U.S. exports less competitive.

Also since then, Europe's economy has been on shaky ground and the European Central Bank has eased monetary policy, weakening the euro's value against the dollar. European policymakers are currently fighting a debt crisis in Greece that threatens to rip apart the continent's monetary union.

Exports of goods to Germany fell 6.0 percent in May from the prior month, according to non-seasonally adjusted figures. Sales fell 4.2 percent to France, 2.1 percent to Mexico and 3.0 percent to Japan.

The U.S. economy contracted at a 0.2 percent annual rate in the first quarter, hit by bad weather, a strong dollar, spending cuts in the energy sector and disruptions at West Coast ports.

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Other economic data, including figures on hiring and consumer spending, have pointed to a rebound during the second quarter, and a firming domestic economy could encourage the Fed to raise rates later this year.

In May, the drop in imports came as purchases from China rose 9.5 percent. That could fan further criticism from U.S. manufacturers that Chinese firms are using a cheap currency and unfair subsidies to gain market share in America.

At the same time, U.S. net imports of oil fell to $5.8 billion in May, the lowest level since 2002.