WASHINGTON – The U.S. trade deficit widened in August from July because exports fell to the lowest level in six months. The wider deficit likely dragged on already-weak economic growth.
The deficit grew 4.1 per cent to $44.2 billion in August, the biggest gap since May, the Commerce Department said Thursday.
Exports dropped 1 per cent to $181.3 billion. Demand for American-made cars and farm goods declined.
Imports edged down a slight 0.1 per cent to $225.5 billion. Purchases of foreign-made autos, aircraft and heavy machinery fell. The cost of oil imports rose sharply.
A wider trade deficit acts as a drag on growth. It typically means the U.S. is earning less on overseas sales of American-produced goods while spending more on foreign products.
Trade contributed to the tepid 1.3 per cent annual growth rate in the April-June quarter. But Steven Wood, chief economist at Insight Economics, predicts that trade will not help economic growth in the July-September quarter and that the weaker exports could actually detract from it.
Most economists don’t expect the economy to grow much more than 2 per cent for the rest of the year.
The trade deficit is running at an annual rate of $561.6 billion, up slightly from last year’s $559.9 billion imbalance.
American manufacturers have been hampered by slumping economies in Europe, China and other key export markets. Many European countries are recession. The region accounts for about one-fifth of U.S. exports.
For August, the deficit with China dipped 2.3 per cent to $28.7 billion. U.S. exports edged up modestly, while imports from China fell. For the year, the U.S. deficit is on track to surpass last year’s record, the highest ever recorded with a single country.
The widening trade gap with China has heightened trade tensions between the two countries. And it has become a flash point in the presidential race. GOP challenger Mitt Romney has promised a tougher approach than President Barack Obama with trade practices that he says are giving China unfair advantages.
The deficit with the European Union fell 2 per cent in August to $11.7 billion. U.S. exports to the region outpaced imports. However, economists expect U.S. sales to Europe to weaken in coming months.
The U.S. deficit with Japan fell 1.4 per cent in August to $6.7 billion. American exports to Japan rose to the highest level since March 1996.
The International Monetary Fund this week projected global growth of just 3.3 per cent for the year and 3.6 per cent in 2013. The downgrade from its July forecast reflected disappointing growth in the United States, spreading recessions in Europe and a sharp slowdown in China.
There have been some hopeful signs that the U.S. economy is improving.
Manufacturing grew in September for the first time in four months, according to a closely watched survey from the Institute of Supply Management. The growth was driven by a jump in new orders and more hiring.
The unemployment rate declined to 7.8 per cent in September, the lowest level since January 2009. It fell because of a huge increase in the number of people who said they found jobs.
Americans are gaining more confidence in the economy and stepping up major purchases.
Auto sales rose 13 per cent last month from a year earlier to nearly 1.2 million. Home sales have been posting solid gains, which have driven home prices higher. When home prices rise, people tend to feel wealthier and spend more freely.