US trade deficit widens, stoking uncertainty over recovery
( 2001-08-18 11:43 ) (7 )

The United States announced Friday a 3.3-percent widening in its June trade deficit as the global slowdown drove down exports, heightening concern over the US economic outlook.

The deficit in goods and services trade widened to 29.4 billion dollars in June from a revised 28.5 billion dollars in May, the Commerce Department reported.

The figures might lead to a downward revision in figures showing US gross domestic product grew at a meagre 0.7 percent pace in the second quarter, said Reusch International economist Alex Beuzelin.

"It will continue to fuel uncertainty about the US economy and whether or not it has bottomed and when exactly is it going to turn around," the economist added.

Markets are sweating over the fear that a much-heralded US recovery in the second half of this year may be postponed.

Signs this week of a bottoming-out in industrial output clashed with a gloomy Beige Book report by the Federal Reserve, which pointed to weak manufacturing and disappointing retail sales.

But investors are counting on the policymaking Federal Open Market Committee to give the economy an extra boost by cutting the key interest rate, probably by 25 basis points, when it meets August 21.

Those expectations were boosted by data Thursday showing consumer prices fell by a 15-year record 0.3 percent in July, easing inflationary fears that might have stayed the Fed's hand.

US Treasury Secretary Paul O'Neill said the economy had been experiencing a natural correction in the past year as three years of Internet-led excesses were shed.

"We are going through that process, and we are going to start moving forward," he said.

O'Neill also defended the White House forecast for US gross domestic product growth of 3.2 percent next year as being in a reasonable range.

The latest Commerce Department trade data showed exports slumped 2.0 percent to 85.95 billion dollars and imports eased by 0.7 percent to 115.36 billion dollars.

Both exports and imports were at their lowest levels since February 2000.

"The combination of a strong dollar and softer foreign economies has really hurt the ability of domestic firms to sell overseas," said Naroff Economic Advisors president and chief economist Joel Naroff.

"Interestingly, we managed to export more to Asia and South and Central America, but Europe seemed to shut its doors to US goods."

In trade with Japan, the US deficit expanded to 5.0 billion dollars from 4.81 billion dollars in May. But the deficit was down from 6.4 billion dollars in June 2000.

Likewise, with China the US trade deficit grew to 6.6 billion dollars in June from 6.1 billion dollars in May. A year earlier, however, the US deficit with China was 7.2 billion dollars.

"On the import side, China seems to be emptying out its warehouses and dumping them in the United States as our purchases of Chinese products soared in June," Naroff said.

The US deficit with Hong Kong, South Korea, Singapore, and Taiwan edged up to 1.85 billion dollars in June from 1.79 billion dollars in May. But it was down from 1.98 billion dollars in June 2000.

The United States enjoyed a trade surplus with Britain of 467 million dollars in June, compared with a surplus of 446 million dollars in May and a deficit of 25.0 million dollars in June 2000.

But the US trade deficit with the euro zone fell to 4.17 billion dollars from 4.85 billion dollars in May. It was up from 3.51 billion dollars in May last year.