http://www.latimes.com/business/la-fi-econ-trade-20100714,0,6591387.storySurprise jump in trade deficit worries economists By Don Lee, Los Angeles Times
July 13, 2010 | 9:54 a.m.
Reporting from Washington —
The U.S. trade deficit jumped unexpectedly in May to the highest level since November 2008, prompting some analysts to cut their second-quarter economic growth forecasts sharply and economists to warn of rising risks of a double-dip recession.
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But American purchases of foreign-made computers, machinery and particularly household goods, notably from China, increased significantly in May. Analyst Diane Swonk attributed much of the surprising import gains to stockpiling by retailers and producers who are fearful of a potential trade war with China.
"This is a distortion; it's not reflective of domestic demand," said Swonk, chief economist at Mesirow Financial in Chicago, referring to the higher deficit in May. She added that the report was disturbing because it points up the political and economic risks weighing on the economy.
"Now, a rising trade deficit and continued weakness among regional banks threaten to derail the recovery," Peter Morici, a University of Maryland professor and former chief economist at the U.S. International Trade Commission, wrote in an analysis following Tuesday's report.
Other analysts worry that persistent high trade deficits are resulting in increased borrowing to finance purchases as well as a buildup of unsold domestically produced goods, which in turn could lead to reduced work hours or layoffs. Soaring deficits financed by cheap money from abroad contributed to the latest recession.
The recession sharply reduced the U.S. trade gap, with imports falling faster than exports. But in recent months, as the U.S. economy has turned the corner, the deficit has been widening again.
U.S. exports of goods and services in May increased at a solid pace, rising 2.4% from April to $152.3 billion. Most of the gains came from stronger shipments of capital goods such as industrial machinery.
For the first five months of this year, American exports were up 17.7% from the same period of 2009, to $739.5 billion, helping fuel a rebound in the manufacturing sector. At that rate, President Obama would have no trouble meeting his goal of doubling exports in five years in a bid to create more jobs.
But the problem is that U.S. imports — long much bigger than exports — have begun to expand at an even faster pace than exports. And that rate does not add to, but boosts the trade deficit, which subtracts from economic and job growth.