The gap between U.S. exports and imports grew more than expected in May, to $42.27 billion, up 4.8% from the revised April gap of $40.29 billion. That’s the highest trade deficit in 18 months, and represents higher levels of imports from China. The U.S. trade with China grew the trade deficit to $22.28 billion in May, up 15% from $19.31 in April.
Imports of crude oil fell from $22.69 billion in April to $21.54 billion in May due to a $0.20 decline in the price of a barrel of oil. Crude oil import volume also fell from 294.12 million barrels in April to 280.03 million barrels in May. Overall energy-related imports fell from $28.83 billion to $27.6 billion.
US exports for the month of May rose 2.4%, from $148.72 billion to $152.25 billion, the best showing for US exports since September 2008. Even so, total US imports summed to $194.52 billion in May, up 2.9% from $189.04 billion in April.
In general, when the U.S. buys more than it sells, the situation is regarded as bad news. With US exports growing, the rise in imports could signal more robust growth in consumer spending, the single largest contributor to U.S. GDP. In other words, the U.S. economy may be improving at a better rate than other indicators might lead one to believe.
On the import front, lower volume and spending on energy is a good thing because it frees up more cash to buy cars, computers, toys, and clothes. And that did happen in May, with auto imports rising $2.2 billion, capital goods imports rising $1.96 billion, and consumer goods imports rising $2.62 billion.
US exports of the same types of goods improved too. Capital goods exports rose $1.99 billion, yielding a $30 million net gain in foreign trade. Consumer goods and auto exports also improved, but only modestly.
If US consumers are actually buying these imported goods, and the goods are not just ballooning inventories, it demonstrates that there may still be signs of life in the overall US economy.
One drag on trade is China’s reluctance to allow its currency to appreciate. Although the Chinese government announced in mid-June that it would end its peg to the US dollar, the yuan has appreciated less than 1%. A more expensive yuan would raise the price on Chinese exports, making goods from other countries more competitive with Chinese goods and help put the brakes on global trade imbalances.
China is also clamping down on domestic investment, which is dampening demand for imports. China’s imports in June rose 34.1%, substantially lower than May’s 48.3% increase. The country’s exports grew 43.9% in June, slower than May’s 48.5% rise, but still far faster than imports.
The May trade deficit is not unmitigated bad news. Lower spending on energy, most of which goes for crude oil that is refined into gasoline, gave consumers a chance to spend a little more on cars, computers, and clothes. That’s a positive sign, even if it’s fairly faint.
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