- The Washington Times - Friday, August 13, 2004

The trade deficit rocketed 19 percent to a record $55.8 billion in June, a stunning development that economists said renews doubts about growth in the United States and the rest of the world.

The trade gap ballooned because of a 19 percent surge in pricey oil imports and a sharp slowdown in economic growth and the appetite for American goods among major trading partners in Europe and Japan.

Oil imports are up 41 percent from a year ago, mirroring runaway growth in prices for premium crude that jumped $1.08 to a fresh record of $46.58 a barrel in New York trading yesterday.

Soaring oil prices hit consumers and depressed economic growth in the United States and other countries during the spring quarter, with Japan’s growth rate dropping sharply to 1.7 percent and growth in the European Union slowing to an anemic 0.5 percent.

The massive downshift in growth caused exports of big-ticket American products that usually are big sellers around the world — aircraft and semiconductors — to fall by double-digit amounts in June.

“Shockingly dismal” is how Joseph T. Abate, senior economist at Lehman Brothers, described the news.

Because exports help fuel U.S. growth and surging imports displace purchases of American-made goods, the figures suggest that growth this spring in the U.S. economy was even slower than originally estimated by the Commerce Department — about 2.5 percent rather than 3 percent, economists said.

“This poses some significant worries for the economic outlook,” Mr. Abate said. Imports increased in many of the same categories where exports fell. “It suggests that demand is being met from foreign rather than domestic production and employment,” he said.

An employment pullback in June and July is putting a damper on U.S. consumer spirits and spending. The University of Michigan yesterday reported a dip in its measure of consumer sentiment during the first part of August.

About the only welcome development from the falloff in growth worldwide has been a cooling of inflation, as seen in a report on producer prices from the Labor Department yesterday. Wholesale prices rose 0.1 percent in July despite a surge in energy prices.

The sharp slowdown in the world economy was reflected in a 4.3 percent drop in U.S. export growth to $93 billion in June, the biggest decrease in three years. That trend is likely to continue and lead to more subpar growth in the United States, many economists said.

The trade report is “raising questions about the strength of the global economy at midyear,” Morgan Stanley economists said in a note to clients that revised down estimates of growth for the spring and summer quarters.

“The drag we are getting from trade, plus the big bite higher oil prices take out of purchasing power, will translate into weaker growth,” said David Wyss, chief economist at Standard & Poor’s.

Lynn Reaser, chief economist at Banc of America Capital Management, said the weakness in exports and decline in consumer confidence “raise yellow flags.”

But the strong 3.3 percent rise in imports to $149 billion in June shows that U.S. consumers and businesses at least kept shopping, she said.

John Ryding, chief economist at Bear Stearns, said robust U.S. demand should continue to sustain growth. He expects the decline in exports to reverse in future months, reverting to the past year’s “strongly rising trend” despite a choppy pattern that has emerged since spring.

Manufacturing groups also have been optimistic that the boom in exports will continue, despite a recent soft patch.

“The economy has got a lot of basic thrust to it, but these current energy prices have created some head winds for us,” Treasury Secretary John W. Snow said yesterday on a visit to Boca Raton, Fla. “Growth in the rest of the world appears to be slowing.”

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