- The Washington Times - Saturday, July 11, 2009

During the ongoing recession, American households have seen their incomes battered by soaring unemployment and their wealth smashed by plunging home prices and a bear market.

They are spending far less freely than they did before the recession, and the trend is playing itself out in the monthly trade report, which revealed that imports fell for the 10th consecutive month in May.

The trade deficit for May plunged to its lowest level in nine years as falling imports were matched by rising exports.

The monthly trade gap, which peaked at $64.9 billion last July, plummeted nearly 10 percent in May to $26 billion, the Commerce Department reported Friday. After the monthly trade deficit increased relentlessly over 15 years, the recession has managed to cut it by 60 percent in less than a year.

But not everybody is impressed.

“Even after 17 months of the current long and severe downturn, with production, jobs and spending plunging, the U.S. continues to produce far less than it spends,” observed Charles McMillion, chief economist of MBG Information Services. “Through the first five months of 2009, the U.S. is relying on nearly $1 billion per day in net imports of goods and services from China and elsewhere, along with worsening the U.S. debt dependence on China and other foreign interests to pay for the privilege.”

Hammered by the global recession, exports increased for just the second time in 10 months, rising in May by nearly $2 billion, or 1.6 percent, to $123.3 billion. But exports were still down 25 percent from their $164.4 billion peak last July.

Imports, led by plummeting oil prices, which peaked at nearly $150 per barrel last summer, have fallen much faster than exports, leading to the improvement in the trade deficit. Imports declined by $900 million, or 0.6 percent, in May to $149.3 billion. That was 35 percent, or $80 billion, below the $229.3 billion in goods and services that Americans imported in July 2008.

“The improvement in exports, combined with stability in non-oil imports, is a welcome sign that the headlong decline in world trade volume has come to an end,” said Nigel Gault, chief U.S. economist for IHS Global Insight. Earlier this week, the International Monetary Fund estimated that world trade would plummet by 12 percent this year, the steepest decline since the Great Depression. The IMF also projected that the world economy would shrink by 1.4 percent this year, the first annual global contraction in post-World War II history.

The U.S. trade deficit in goods and services averaged about $700 billion in 2007 and 2008. During the first five months of 2009, the trade gap has been running at an annual rate of $350 billion.

This surprising improvement in the nation’s trade balance will reduce the expected decline in gross domestic product for the April-June period. “In the second quarter, as in the first, trade will make a strong positive contribution to GDP growth,” said Mr. Gault. Trade will probably reduce the second quarter’s rate of decline by 1.5 percentage points, he estimated.

“The trade figures point to a GDP decline of less than 2 percent” during the April-June period, Mr. Gault said. The U.S. economy contracted by annual rates of 6.3 percent in the fourth quarter and 5.5 percent during the January-March period.

The trade deficit with Canada, America’s largest trading partner and the biggest foreign supplier of oil, natural gas and uranium, fell to $628 million in May, the lowest monthly gap in 15 years. The $1.9 billion deficit with Japan in May was the smallest in two decades. The deficit with China increased by 4 percent in May to $17.5 billion, but the $84.6 billion trade imbalance with China during the first five months of the year is running 14.4 percent below last year’s level.

Import prices jumped 3.2 percent in June from May, the Labor Department reported Friday. Excluding petroleum, import prices increased only 0.2 percent last month, and they were down 17.4 percent compared to June 2008.

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