Trade gap rises 18.8% in June, highest in 20 months

8/11/2010

WASHINGTON - A decline in exports and a sharp rise in imports pushed the U.S. trade deficit in June to its widest point since October 2008, raising new concerns about the weakening economic recovery.

The $49.9 billion gap is worrying economists, who fear it means the U.S. economy grew at half the rate in the April-to-June quarter first estimated by the government last month.

The trade deficit jumped 18.8 percent in June compared to May, the Commerce Department reported Wednesday.

While the rise in imports suggests the U.S. economy is growing, the drop in exports is a troubling sign for U.S. manufacturers who rely on overseas markets.

U.S. exports slipped 1.3 percent to $150.5 billion. Sales of American farm products, computers, and telecommunications equipment all declined. Imports rose 3 percent to $200.3 billion.

The surge in consumer imports reflected higher shipments of a wide variety of goods from cell phones and household appliances to televisions and clothing.

Nigel Gault, an economist at IHS Global Insight, said the June deficit figure means that the government will trim its estimate of overall economic growth from an already subpar 2.4 percent to 1.2 percent when it releases a revised estimate on Aug. 27.

He said that placed the economy "on even shakier ground" and underscored why the Federal Reserve announced on Tuesday that it would supply additional support for economic growth.

Stocks tumbled Wednesday as investors around the world worried about the state of the U.S. economy. The Dow Jones indus-trial average fell 265 points, its biggest drop in six weeks, and all the major indexes fell more than 2 percent.

The deficit in goods and services, the difference between what America sells abroad and what the country imports, rose to the highest level in 20 months. Through the first six months of this year, the deficit is running at an annual rate of $494.9 billion. That is up 32 percent from the $374.9 billion deficit for all of 2009, a year when the deficit was cut nearly in half as a result of the recession.

Economists had expected the deficit to widen this year as an improving domestic economy lifted U.S. demand for foreign consumer goods and industrial products. But they had hoped that some of the drag on growth would be offset by a solid rebound in U.S. exports.

American manufacturers have enjoyed growing demand for their products in Asia. But they have faced weakness in Europe, where the economic rebound has been subdued by the debt crisis that erupted in the spring.

Exports of electric generators, civilian aircraft, and machine tools bucked the downward trend in June to post increases.