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Trade deficit hits record
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July 19, 2000: 11:13 a.m. ET
May trade gap widens to $31B as cost of petroleum imports surges
By Staff Writer M. Corey Goldman
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NEW YORK (CNNfn) - The U.S. trade deficit widened to another record in May as imports of consumer goods such as televisions and DVD players surged and the cost of petroleum-related imports jumped to the highest level in almost two years, government figures released Wednesday showed.
Both imports and exports declined for a second straight month as trade of other goods such as autos and auto parts with Canada tapered off, the Commerce Department said.
 The trade deficit, which measures the amount of money spent on imports coming into the United States versus the amount received from exports leaving the country, widened in May to a record $31.04 billion. That was more than $500 million above April's revised $30.5 billion deficit and the $30.5 billion gap expected by analysts.
The report provided yet another muddled signal to investors about the pace of the economy and whether the Federal Reserve will need to step in again and lift interest rates. While overall imports and exports both declined during the month, record imports of consumer goods indicated demand remains strong.
"With imports now more than one third higher than exports, it will take a sharp reversal in these growth rates for the trade shortfall to narrow on a sustained basis," said Steve Wood, an economist with Banc of America Securities in San Francisco. "Although the U.S. economy is slowing and international economic activity is accelerating, it is unlikely that the trade deficit will narrow anytime soon."
Petroleum product imports jump
May's record deficit was due in large part to higher petroleum product imports -- which, thanks largely to higher oil prices, rose by $600 million for the month. In fact, overall imports declined to $116.8 billion from $117.1 million in April, thanks to a decline in shipments of autos, auto parts and engines to the United States from Canada -- the nation's largest trading partner.
The Big Three automakers, Ford (F: Research, Estimates), General Motors (GM: Research, Estimates) and DaimlerChrysler (DCX: Research, Estimates), have many of their car and truck models manufactured in Canada thanks to the 1965 Canada-U.S. Automotive Products Agreement, or Auto Pact, which allows them to import vehicles and parts back into the U.S. duty-free, provided certain conditions are met.
 At the same time, other categories of imported goods rose, particularly consumer items such as TVs, VCRs and toys. Imports of TVs and VCRs rose 4.5 percent in May, as U.S. retailers report gains in purchases of digital cameras, personal computers and music. Imports of toys rose 4.1 percent.
As for exports, a drop in shipments of computer parts and other electronic goods from the United States helped push May's exports down to $85.8 billion from April's $86.6 billion. Also contributing to the export decline was a drop in shipments of industrial supplies and materials as well as consumer goods.
"Exports are down and imports are down despite a strong increase in crude oil imports, which to me suggests there is some cooling of demand," said Mary Dennis, an economist with Merrill Lynch. Still, with overall exports down, it indicates that some areas of manufacturing are beginning to feel the effects of slowing demand, particularly at home.
More mixed signals
Indeed, the report is the latest to provide mixed signals to analysts and investors about whether the U.S. economy, now in its 112th and record month of uninterrupted economic expansion, is starting to respond to the Fed's series of inflation-curbing rate increases launched last year. The Fed's policy setting arm, the Federal Open Market Committee, next meets Aug. 22.
Wayne Ayers, chief economist with FleetBoston, told CNNfn's Before Hours that he expects exports will begin to catch up with and eventually overtake imports as the U.S. economy slows and as other economies in the world such as Asia and Europe speed up. (389KB WAV) (389KB AIFF)
 But, analysts cautioned, that scenario could have a negative impact on the value of the dollar. While imports have helped fill the gap between what U.S. manufacturers can produce and what consumers want, the outflow of dollars needed to purchase those goods could ultimately hurt U.S. growth. Already some analysts are calling for second-quarter growth in the 2.5-percent-to-3-percent range, significantly below the 5.4 percent pace registered in the first three months of the year.
By country, the trade deficit with Japan fell to $6.9 billion in May from $7.3 billion in April. The deficit with China rose to $6.3 billion from $5.8 billion. The deficit with Asia's newly industrialized countries rose to $2.3 billion. The deficit with Mexico widened to $2.3 billion. The deficit with Western Europe grew to $5.7 billion. And the deficit with Canada rose to $4 billion. 
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