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Economy in Brief

U.S. May Trade Deficit Narrowed Unexpectedly
by Tom Moeller July 11, 2008

The U.S. foreign trade deficit unexpectedly narrowed in May to $59.8B from a little-revised $60.5B in April. A May deficit of $62.4B had been generally expected. So far this year the monthly deficit has averaged $59.0B versus $59.8B during the first five months of 2007.

In constant dollars the picture is even more encouraging as the deficit narrowed to $43.6B from $46.6B in April. So far this year the real deficit has narrowed by $10B to an average $47.8B. For the second quarter so far it appears the narrower deficit will add up to two percentage points to real GDP growth after additions between 0.8 and 1.4 percentage points during the last three quarters.

U.S. exports rose 0.9% following the 3.7% pop in April that was revised up slightly. Annualized, exports have risen at an 11.4% rate during the last three months versus 13.0% growth during 2006 and 2007.

Goods exports rose 0.5% May after an upwardly revised 5.0% pop in April. In chained dollars they rose 0.7% (10.3% y/y). Real exports of nonauto consumer goods dipped 0.1% (+10.4% y/y) after their 6.2% pop during April. Exports of capital goods also gave back some of their strong April gain and fell 1.7% (+6.8% y/y). Exports of industrial supplies & materials jumped 4.8% during May (16.0% y/y).

Exports of services rose 1.3% (16.0% y/y), about the same as they did during April. Travel exports surged 2.3% (20.0% y/y) and passenger fares rose 0.8% (25.9% y/y).

Reduced demand for oil dropped May petroleum imports by 1.7%. Adjusted for the higher prices, petroleum imports slouched by 10.5% (-13.5% y/y). The average cost for a barrel of crude oil was $106.28 in May.

Month-to-month, imports of nonpetroleum products rose 1.3% but measured in chained 2000 dollars these imports rose just 0.8% (0.8% y/y) following a 2.5% surge in April. In chained dollars imports of capital goods surged again by 1.6% (6.3% y/y). Chained imports of nonauto consumer goods also were quite firm and jumped 3.6% (2.2% y/y). That strength was countered by a 3.9% (-3.1% y/y) drop in real imports of automotive vehicles & parts.

Services imports jumped 1.1% (8.9% y/y). Travel imports increased reversed an April decline and rose 1.4% (8.2% y/y) while passenger fares increased 1.3% (16.5% y/y).

With China, the U.S. trade deficit in goods added to the sharp April deterioration and fell to $21.0B. That was the deepest deficit since last November. The deficit with China during the first five months of this year is about the same as during last year's first five months. Exports to China rose 26.3% y/y and imports rose a moderate 9.4%.

Globalization and Inflation Dynamics: The Impact of Increased Competition from the Federal Reserve Bank of New York is available here

Building a Better World: Infrastructure's Role in Economic Growth from the Federal Reserve Bank of Atlanta can be found here

Foreign Trade  May April Y/Y 2007 2006 2005
U.S. Trade Deficit $59.8B $60.5B $59.4B (5/07) $700.3 $753.3 $711.6B
Exports - Goods & Services 0.9% 3.7% 17.8% 13.0% 13.5% 10.6%
Imports - Goods & Services 0.3% 4.6% 12.5% 6.1% 10.8% 12.8%
  Petroleum -1.7% 12.9% 47.4% 9.4% 20.1% 39.6%
  Nonpetroleum Goods 1.3% 3.7% 6.9% 4.8% 9.1% 10.3%
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