Trade deficit shows 1st decline in 6 months

WASHINGTON — WASHINGTON - The U.S. trade deficit narrowed in May for the first time in six months as exports surged to a record, led by aircraft, engines and other capital goods, a government report showed yesterday. Imports also were the highest ever.

The $46 billion gap in goods and services trade followed a record shortfall of $48.1 billion in April, the Commerce Department said. The 4.5 percent reduction in the deficit in May was the largest since October 2002.


Exports rose 2.9 percent as the dollar dropped against the euro and yen, making U.S. goods less expensive to sell abroad.

U.S. companies such as aircraft maker Boeing Co. and industrial products maker Parker Hannifin Co. are increasing overseas sales, aided by Japan's recovery and China's demand for raw materials and other products.


"As the world economy is improving, our exports are on the rise again," said Stuart Hoffman, chief economist at PNC Financial Services Group in Pittsburgh.

Exports had declined 1 percent in April.

May's trade deficit with Japan narrowed to $5.5 billion from $6.4 billion. Tokyo became more optimistic about the outlook for the Japanese economy for the first time in six months, the Cabinet Office said today.

Gap with China widens

The trade gap with China widened to $12.1 billion from $12 billion, with exports to China increasing to $2.9 billion from $2.7 billion. Boeing, the world's second-biggest commercial aircraft maker, expects the Asian nation to be an important customer for its 7E7 aircraft scheduled for delivery in 2008.

"Asia is very strong because that's where the traffic growth is," Boeing Chief Executive Officer Harry Stonecipher said in an interview.

Economists had expected the U.S. deficit to remain at the $48.3 billion previously reported for April.

The dollar had its biggest gain against the euro in two weeks after the trade report. The dollar strengthened to $1.2329 per euro from $1.2409 late Monday.


The trade deficit narrowed even more when adjusted for higher prices. The inflation-adjusted gap was $50.2 billion in May, the smallest since November and down from $53.5 billion a month earlier.

The overall trade deficit so far this year is still larger than it was in the first five months of 2003. Through May, the deficit was $231 billion, compared with $208.7 billion a year earlier. For all of last year, the deficit reached a record $496.5 billion.

The trade deficit subtracts from estimates of gross domestic product because the goods and services come from elsewhere. At the same time, increased spending and inventory building, even with imported goods, contribute to GDP.

The trade gap was one reason that the final figure for first-quarter GDP dropped to 3.9 percent from an original estimate of 4.4 percent.

Before the Commerce report, economic statistics "were suggesting GDP growth of 3 percent to 3.5 percent in the second quarter, but the trade results boost projected growth to a range of 3.5 percent to 4 percent," said Michael Moran, chief economist at Daiwa Securities America Inc. in New York.

Net exports may subtract a quarter percentage point from second-quarter growth after subtracting 0.7 percentage point in the prior three months.


The economy is forecast to grow 4.1 percent at an annual rate in the second quarter, according to a Bloomberg survey of economists June 25-July 6.

The stronger economy is bringing in more tax revenue for the federal government.

The Treasury Department reported that the nation had a $19.1 billion surplus in June, a month in which quarterly tax payments are due, compared with $21.2 billion in June 2003. Economists had forecast a $16 billion surplus.

Exports rose 2.9 percent to $97.1 billion in May, the biggest gain since a 3.1 percent gain in March, the Commerce Department's report showed. Foreign businesses bought $28.8 billion worth of capital goods from the United States, a 6.3 percent increase.

Imports up even more

Imports rose 0.4 percent in the month to $143.1 billion, led by automobiles and industrial supplies, including oil.


The value of U.S. oil imports rose in May to $10.5 billion from $9.7 billion the previous month. The price of oil was $33.12 a barrel, up from $31.

Nonpetroleum imports were a record $106.3 billion.

Imports of autos and parts rose 2.4 percent in May to $19.4 billion.

At the same time, U.S. imports of consumer goods fell 3 percent. U.S. imports of capital goods rose 0.2 percent. Imports of industrial supplies, which include chemicals and metals as well as oil, rose 3 percent to $31.8 billion.