US trade deficit falls on declining demand for oil
11 Oct 2008
The US has always been a nation of consumers, with the ballooning trade deficit a major cause of concern in Washington DC. However, August's figures, released yesterday by the Commerce Department, will give them some cause for cheer. The country's trade deficit edged down slightly, reflecting a drop in foreign oil from record levels. But the politically sensitive deficit with China increased as imports from that country hit an all-time high.
The deficit declined by 3.5 per cent in August to $59.1 billion. The deficit is expected to shrink even further in coming months as a severe economic slump in the US depresses demand for oil and other imported goods.
America's foreign oil bill declined to $43.7 billion in August, down a record $7.3 billion from the all-time high of $51 billion in July. The drop reflected both lower shipments and oil prices. The average price per barrel of oil amounted to $119.99 for August, down from $124.66 in July.
The big decline in oil lowered total imports to $223.9 billion, the second highest level on record but down by 2.4 per cent from the all-time high set in July. US exports totaled $164.7 billion, also the second highest level on record, but down 2 per cent from the July record.
Exports have climbed to record levels this year in part because of a slump in the dollar since 2002 that has made American products more competitive in world markets. The currency has advanced against the euro in recent weeks as Europe's economic outlook deteriorated, while the dollar's decline against the yen has accelerated.
If imports continue to fall, this will be a technical boost to US gross domestic product. But observers say there's no doubt that the economy has now entered recession as the credit crunch has hit already-weakened consumer and business sectors.
The declines in oil support the view of economists that the trade deficit will show further improvements in coming months, reflecting a lower oil bill and falling demand for other imported goods as the weak US economy depresses demand. In addition to crude oil, imports of automobiles, computers and televisions also dropped as the deepening financial crisis caused American consumers and businesses to retrench.
For August, the deficit with China edged up by 1.8 per cent to $25.3 billion, the second-highest imbalance on record, as imports from that country rose to an all-time high. The import gain reflected big increases in shipments of toys and games, cell phones and clothing as US retailers stocked up for the holiday sales season.
For the first eight months of the year, the nation's trade gap has been running only slightly above last year's pace - indicating that one bright spot in the recent economic gloom is that the trade imbalance is showing improvement.
So far this year, the trade deficit is running at an annual rate of $717.1 billion, up slightly from last year's deficit of $700.3 billion, which had represented the first decline after setting records for five straight years.
For August, the deficit with Canada, America's biggest trading partner, fell by 10 per cent to $7.4 billion. The deficit with the European Union dropped 38.5 per cent to $6.8 billion.
