May trade gap widens on oil imports

US exports declined 0.5 percent to $174.9 billion in May while imports rose 2.6 percent to $225.1 billion. US exports declined 0.5 percent to $174.9 billion in May while imports rose 2.6 percent to $225.1 billion. (Stephen Morton/ Bloomberg News)
Associated Press / July 13, 2011

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WASHINGTON - The US trade deficit surged in May to the highest level in more than 2 1/2 years, driven wider by a big increase in oil imports and a decline in exports.

The Commerce Department said yesterday the deficit increased 15.1 percent to $50.2 billion in May. That’s the largest imbalance since October 2008.

Exports declined 0.5 percent to $174.9 billion. Imports rose 2.6 percent to $225.1 billion. Oil prices have fallen since May, so the effect of higher prices should ease some in the coming months. The deficit is running at an annual rate of $563.2 billion. That’s 12.6 percent higher than 2010. A higher trade deficit subtracts from overall economic growth because it means consumers are purchasing more foreign-made goods and fewer products made by US workers.

Analysts said the wider deficit in May means the economy probably grew at an even slower pace in the April-June quarter than they had previously forecast. Paul Dales, chief US economist at Capital Economics, said he was now looking for economic growth of around 2 percent in the second quarter.

The deficit with China jumped to $25 billion, the largest monthly gap since November. The deficit with Japan fell 26.4 percent to $2.6 billion. Japanese imports shrank further because of supply-chain disruptions caused by the March earthquake and tsunami.

Economists say Japan is starting to rebound from the crisis and a parts shortage that followed those disasters.

Manufacturing has been one of the strongest areas of the US economy since the recession officially ended. Sales in foreign markets have been helped by increased demand and a weaker dollar, which makes US goods cheaper overseas and imported goods more expensive.