July trade deficit climbs 16.3 pct to $32 billion

WASHINGTON - September 10, 2009 The Commerce Department said Thursday that the trade deficit rose 16.3 percent to $32 billion in July, much larger than the $27.4 billion imbalance that economists had expected. It was the largest imbalance since January and the percentage increase was the biggest in more than a decade.

Imports rose by 4.7 percent, the largest monthly advance on records that go back to 1992, while exports edged up by a smaller 2.2 percent. Both gains provided evidence that the most severe recession since World War II was beginning to lose its grip on the global economy.

The increase in imports pushed them to a total of $159.6 billion in July and marked the second consecutive monthly gain after imports had fallen for 10 straight months as demand in the United States plummeted in the midst of the prolonged recession.

The rebound in July reflected a 21.5 percent spike in imports of autos and auto parts, a gain that reflected in part a rebound in production at U.S. auto plants owned by General Motors and Chrysler. Those companies had curtailed production in May and June as they struggled to emerge from bankruptcy protection. Both companies as well as foreign automakers with plants in the United States make use of foreign-made auto parts in their U.S. manufacturing operations.

Foreign oil imports also rose in July, climbing by 3.6 percent to $22.4 billion, the highest total since December, reflecting as the volume of shipments increased and the average price for an imported barrel of crude oil rose to $62.48 in July, up from $59.17 in June. It was the highest price for crude since last November but still well below the records approaching $150 per barrel set in the summer of 2008.

America's foreign oil bill is expected to rise further in the months ahead given that world oil prices have continued to climb. Oil was trading near $72 per barrel on Thursday.

Exports were up as well in July, climbing to $127.6 billion. It marked the third consecutive monthly increase in exports but left them well below their record level of $164.4 billion set in July 2008.

The export gains in July reflected big increases in shipments of civilian aircraft, computers, industrial machinery and medical equipment.

U.S. companies have been battered by the drop in demand in the United States and in major export markets as the recession that began in the United States spread worldwide. However, economists are hoping that a rebound in global economies as well as further weakening in the value of the dollar will help boost exports in coming months. A weaker dollar makes U.S. products less expensive in overseas markets.

The politically sensitive trade deficit with China rose by 10.8 percent in July to $20.4 billion but so far this year is running 14 percent below last year's all-time high.

The increase in the July deficit marked the second consecutive month it has increased after hitting a nearly nine-year low of $26.4 billion in May. The June deficit was revised up slightly to $27.5 billion.

So far this year, the deficit is running at an annual rate of $355.5 billion, just half of last year's total deficit of $695.9 billion. Economists believe the deficit will keep rising in the months ahead, reflecting stronger growth in the United States and rising oil prices.

Economists see the widening trade deficit as further evidence that the recession is coming to an end and they expect the imbalance in 2010 will be approaching the levels seen before the recession hit.

America's deficit with Canada, the country's largest trading partner, surged by 41.7 percent in July to $2.2 billion, up from $1.5 billion in June. The deficit with the European Union jumped by 76.5 percent to $8 billion while the deficit with the Organization of Petroleum Exporting Countries rose by 18.5 percent to $6.9 billion. The imbalance with Mexico fell by 14.4 percent to $2.9 billion.

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