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U.S. trade deficit fattens in August

by Isabel Zhong
Oct 11, 2012

The monthly U.S. trade deficit widened to $44.2 billion in August as slower global growth dampened demand for industrial supplies and materials. U.S. exports fell to their lowest level in six months.

August’s deficit was marginally higher than the $44 billion deficit forecast by economists surveyed by Bloomberg. It increased by 4.1 percent compared with July’s $42.5 billion deficit. The August number was slightly lower than the $44.8 billion deficit recorded in the same month a year ago.

August exports totaled $181.3 billion, while imports amounted to $225.5 billion. A sharp $1.5 billion decrease in exports of goods drove August’s figure down by 1 percent. Exports of U.S. services actually increased slightly.

Within exports, industrial supplies and goods was the category that saw the largest decrease with a $1.2 billion drop from July. There was also a steep drop in soybean exports, down $1.4 billion from a month ago.

“There was a large seasonal decrease in soybean exports,” said Faye Johnson, a statistician at the foreign trade division of the U.S. Census Bureau, which tracks trade activity for the government. Johnson explained the decrease was a result of higher soybean prices that resulted from this summer’s crippling drought.

A $500 million increase in royalties and license fees significantly increased U.S. imports in August. That reflected payments for rights to broadcast the 2012 Summer Olympics. Johnson said she expected the effects of these payments to trickle into imports for September, when the second half of the Olympics occurred.

The U.S. monthly trade deficit with China, the country’s largest trading partner, shrunk by $700 million in August to $28.7 billion. The country’s deficit with six other major trading partners, including the European Union and Japan, also shrunk.

Adolfo Laurenti, deputy chief economist at Mesirow Financial in Chicago, attributed the narrowing of the U.S.-China trade deficit to “increased economic weakness on both sides of the relationship.”

The massive deficit with China, which stood at $295.4 billion through August, has been a highly visible and contentious issue in international politics. The U.S. has repeatedly called for China to revalue its currency vis a vis the dollar, which would shrink the size of the imbalance.

“China’s huge trade surplus with the U.S. is very much a unique issue since China doesn’t actually run surpluses against most of its other trading partners,” Laurenti said. “In fact, I think the U.S. is going to continue to press China to float its currency and let market forces determine the yuan’s value.”

The U.S. trade balance is a closely watched indicator in the foreign exchange market, where it is commonly used to anticipate the dollar’s future movements. Deutsche Bank’s U.S. dollar trade-weighted index, a gauge of the dollar’s value relative to five other major currencies, slid from 66.50 at late Wednesday to 66.18 by midday Thursday.

“A trade deficit means a country will need to sell its own currency in order to restore the trade balance, which leads to a decrease in the value of that currency,” Laurenti explained.

The September trade balance will be released November 8. It is likely to be another weak month for exports because of dampened demand for U.S. goods in Europe.