US Trade Deficit Explodes -
Worst In Five Years

WASHINGTON (AFP) - The US trade gap exploded to a record 55.8 billion dollars in June, the sharpest deterioration in more than five years, the government said.
The shortfall mushroomed 19.1 percent, the biggest one-month rise since February 1999, to a seasonally adjusted 55.8 billion dollars, the Commerce Department said.
The trade gap shattered the previous record deficit in April of 48.2 billion dollars, and appeared to put the country on the path to an unprecedented annual deficit.
"The trade deficit soared to simply incomprehensible heights in June," said Naroff Economic Advisors president Joel Naroff.
"If we believe the Commerce Department, the trade deficit is running well above 600 billion dollars on an annualized basis," he said. The shortfall was "so far off the radar screen that it constitutes a sneak attack."
Naroff questioned the data.
"What, did foreigners go on strike and decide they didnt want to buy US goods anymore? Did the economies around the world suddenly collapse?" he asked.
Exports crumbled 4.2 billion dollars, or 4.3 percent, to 92.8 billion dollars, the steepest decline since the September 11, 2001 terrorist attacks, the Commerce Department said.
Foreign demand weakened for US-made capital goods, industrial supplies, foods, motor vehicles and consumer goods.
"It is just a phenomenal deterioration for one month in the trade balance," said BMO Financial Group senior economist Sal Guatieri. "There was broad-based weakness in export growth, which is a little disconcerting because it could mean that because of higher energy costs the global economy has softened a little," Guatieri said.
Imports, however, climbed 4.7 billion dollars, or 3.3 percent, to 148.6 billion dollars.
Americans snapped up foreign-made industrial supplies, capital goods and consumer items, showing strong underlying US domestic demand, especially among businesses, he said.
The dollar slumped on the news, tumbling to 110.605 yen from 111.715 just before the release. The euro took immediate advantage, rising to 1.2331 dollars from 1.2224.
Democratic presidential challenger John Kerry 's campaign seized on the data as a sign of economic mismanagement by President George W. Bush , who faces an election November 2.
"In the face of yet another report indicating a record trade deficit, the evidence is building that this administration hasnt come close to doing enough to enforce trade agreements and fight for jobs here at home," Kerry spokesman Phil Singer said in a statement.
A breakdown of the raw trade figures showed:
-- The deficit with China expanded 17 percent from the previous month to a record 14.2 billion dollars.
-- The US deficit with Japan widened 14 percent to 6.3 billion dollars.
-- With the European Union , the trade gap grew 35 percent to 10.6 billion dollars.
-- The deficit with the Organization of Petroleum Exporting Countries (OPEC ) grew 10 percent to a record 6.2 billion dollars.
The US deficit could force the government to downgrade its initial estimate of 3.0 percent economic growth in the second quarter of the year, Guatieri said.
But the news was unlikely to sway the Federal Reserve from a program of raising the short-term interest rate, he said.
On Tuesday, policymakers raised the federal funds target rate, which banks charge each other overnight, to 1.5 percent from 1.25 percent in a gradual effort to end the lowest rates in nearly 50 years.
"Outside employment, most numbers for July have suggested a fairly good bounce back in activity and that suggests the Fed will continue extending the tightening cycle in September," Guatieri said.
A separate report provided further comfort to the Federal Reserve, indicating price pressures may be easing.
Producer prices -- a measure of inflation at the wholesale level -- gained 0.1 percent in the month to July, and were up 4.0 over the past year, the Labor Department said.



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