US trade deficit widens amid high oil prices

The Commerce Department reported yesterday that the US trade deficit for June was US$58.8 billion. Reuters reports.

The U.S. trade deficit widened 6.1 percent in June to $58.8 billion, as exports held roughly flat while petroleum purchases drove total imports to a new high. The trade gap grew from May's $55.4 billion, the Commerce Department said. It exceeded analysts' expectations of a $57.3 billion deficit and was closing in on the record $60.1 billion gap of February 2005. Petroleum imports struck a record $19.9 billion as average oil prices in June swelled to $44.40 per barrel.

And oil may cause the trade deficit to worsen in the next few months.

U.S. crude oil closed up 1.6 percent at $66.86 per barrel, a record close, after earlier rising as high as $67.10... With oil prices having risen in July and into August, economists said it was likely the trade gap would widen more and possibly contribute negatively to GDP in the third quarter.

Reuters also reported:

In a sign that higher energy prices are affecting consumers, the University of Michigan's preliminary consumer sentiment index for August slipped to 92.7 from July's 96.5 reading.

Brad Setser warns that it is not just oil that is causing the trade deficit to deteriorate.

[Non-oil imports] were stuck at around $144 billion a month between January and May. It now seems likely that this slowdown reflected an inventory correction... Since that correction now seems behind us, the monthly non-oil US import bill looks set to rise throughout the remainder of the year. In June, non-oil imports ticked up by $1.65 billion or so, to around $146 billion. Watch that number for the rest of the year - I expect it will keep climbing...

Setser now forecasts the current account deficit for 2005 to be $820-830 billion, or about 6.7 percent of US GDP.