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U.S. trade gap widens slightly as Europe exports drop

Hundreds of shipping containers move in a train at the Port of Los Angeles in this file photo.

REED SAXON/AP

The U.S. trade deficit grew slightly in July, a small bit of negative news for the U.S. economy, as exports to Germany, France and other European nations shrank and imports from China soared to a new record.

The monthly trade shortfall was $42-billion (U.S.), compared to a downwardly revised estimate of $41.9-billion for June, as both overall imports and exports declined.

But analysts surveyed before the report had expected a bigger trade deficit of around $44-billion.

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The ongoing debt crisis in Europe appeared to be taking a toll on demand, with U.S. exports to the 27 nations of the European Union falling 11.7 per cent in July.

Exports to Germany were the lowest since February 2010 and the trade gap with the EU was the biggest since October 2007.

"The global volume of trade is slowing because of the weakening global economy, but the ripples in the U.S. have not been too severe so it's not a growth stopper at all. There is no indication the GDP in the third quarter should be revised down," said Pierre Ellis, senior global economist, at Decision Economics in New York.

The U.S. economy grew at just a 1.7 per cent annual rate in the second quarter of this year. Growth in the third quarter is expected to show improvement, but the jobless rate remains stubbornly high at over 8 per cent.

"In short, the report suggests that exports are starting to weaken, although the statistical impact on GDP will probably be neutralized by relatively weak imports as well," said Jim O'Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York.

The Federal Reserve's policy-setting group meets on Wednesday and Thursday and many analysts believe it may launch a third round of bond buying to keep borrowing costs low and breathe more life into the recovery.

The high jobless rate and spotty recovery also is seen as a hurdle to President Barack Obama's re-election bid, though the latest opinion surveys give Mr. Obama an edge over his Republican challenger Mitt Romney as the November polls approach.

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Separate data on Tuesday showed U.S. small business sentiment rose in August for the first time in four months as more owners anticipated better business conditions after the Nov. 6 elections and increased sales.

The National Federation of Independent Business said its optimism index rose 1.7 points to 92.9 last month.

While owners expected an improvement in business conditions over the next six months, they still did not believe that this was a good time to expand operations.

"But looking past the election and year end, owners became a bit more optimistic about improvements in real sales volumes and business conditions," the NFIB said in a statement.

Overall U.S. exports totaled $183.3-billion in July, down just 1 per cent from a record high in June.

Also, U.S. exports of food, feeds and beverages, helped by high crop prices, set a record high in July.

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Overall imports fell 0.8 per cent to $225.3-billion, with a drop in world oil prices helping to cut the tally.

The average price for imported oil was $93.83 per barrel, the lowest since March 2011. Imports of oil and other industrial supplies and materials were the lowest since late 2010.

Meanwhile, imports from China hit a record high $37.9-billion in July, pushing the U.S. trade deficit with China to a record high $29.4-billion.

U.S. exports to China, which has been one of the fastest-growing markets for U.S. goods, increased only 0.4 per cent in July to $8.6-billion.

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