U.S. Trade Deficit Probably Widened in July as Oil Imports Rose

Sept. 11 -- The U.S. trade deficit probably widened in July as higher oil costs overshadowed gains in exports, economists said before a government report today.

The gap grew to $59 billion from $58.1 billion in June, according to the median forecast of 70 economists surveyed by Bloomberg News.

The deficit is unlikely to keep worsening as growing economies overseas and a cheaper dollar fuel demand for American-made machinery, aircraft and computers, economists said. At the same time, U.S. purchases of foreign goods may cool as a housing slump lingers and credit restrictions make it more difficult to borrow.

Oil imports ``may be the primary driver for a widening of the trade deficit in July,'' said John Silvia, chief economist at Wachovia Corp. in Charlotte, North Carolina. ``The weak dollar and solid global growth continue to provide a positive outlook.''

The Commerce Department will issue the report at 8:30 a.m. in Washington. Economist estimates ranged from deficits of $57.5 billion to $61.5 billion.

American exports are benefiting from declines in the dollar, which makes U.S. goods cheaper for foreign buyers. The dollar is down 7.9 percent since the beginning of 2006 against a basket of currencies from major trading partners, according to Federal Reserve figures.

Faster growth overseas is also cushioning U.S. companies from slower demand at home. In the second quarter, China expanded 11.9 percent from a year earlier, the fastest pace in more than 12 years, and India grew at a 9.3 percent rate. Argentina's economy, the second-biggest in South America, will expand more than 8 percent this year, President Nestor Kirchner said Sept. 5.

Growth Rates

The growth rates compare with a 1.9 percent pace of expansion in the U.S. and a 2.5 percent gain in the 13 countries using the euro.

Chicago-based Boeing Co. is among the companies seeing overseas demand growing. The world's second-biggest airplane maker after Airbus SAS won a $1.9 billion order in August from Xiamen Airlines of China for 25 aircraft. Boeing delivered 25 planes to foreign buyers in July, up from 21 in June. Last month, overseas deliveries rose to 30.

General Electric Co. projects that as much as 60 percent of sales may come from outside the U.S. within five years, from 50 percent now, as it sells electronics and engines to emerging markets such as India and China.

China, Yuan

Trade with China has become a politically sensitive issue as some policy makers and manufacturers say that country has kept its currency, the yuan, artificially low to stimulate demand. Lawmakers including Representative Sander Levin, a Democrat from Michigan, have said the yuan is undervalued by as much as 40 percent. Treasury Secretary Henry Paulson has urged China to let its currency rise more.

Oil imports also remain a concern. The price of imported petroleum surged 7 percent in July after a 4.4 percent gain the prior month, according to data from the Labor Department.

The government uses inflation-adjusted figures to calculate trade's influence on economic growth. By that measure, international commerce will continue to support the expansion, economists said.

Estimates from Lehman Brothers Holdings Inc. show trade will contribute 0.4 percentage point to gross domestic product this year and 0.3 percentage point in 2008, after subtracting 0.1 last year. A narrowing gap added 1.4 percentage points to growth last quarter, the most since 1996. Trade contributed more to growth than consumer spending for the first time since 1991.

`Quite Positive'

``The broad outlook for trade looks quite positive,'' said Drew Matus, senior economist at New York-based Lehman. While ``domestic demand is soft, foreign growth is strong and the dollar continues to weaken.''

Economists are divided how the fallout from a housing-led slowdown in U.S. growth will affect economies around the world. Some European officials are upbeat.

``The global economy has solid fundamentals,'' European Central Bank President Jean-Claude Trichet said at a press conference in Basel, Switzerland, yesterday. While uncertainties ``have augmented'' following the turmoil in financial markets, the overall sentiment that the world economy remains sound ``hasn't altered.''


By Shobhana Chandra
(Bloomberg)



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