U.S. Trade Deficit Widens More Than Expected to Record as Oil Imports Jump

Dec. 14 (Bloomberg) — The U.S. trade deficit widened to an all-time high of $55.5 billion in October, boosted by higher oil prices and record imports from China, a government report showed.

The trade gap in goods and services followed a revised $50.9 billion deficit in September, the Commerce Department today said in Washington. The deficit reached $500.5 billion in the first 10 months of the year, surpassing the record for all of 2003.

Imported crude oil prices jumped 11 percent in October to a record $41.79 a barrel. Americans also bought more foreign televisions, clothing and stereos. Consumers and businesses, undaunted by higher prices for foreign goods as the dollar falls, keep snapping up imports as the economy strengthens. Exports also rose to a record.

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“There is a fair pace of demand in the U.S., and add to that the price story and you get a big blowout,” said James Shugg, senior economist at Westpac Banking Corp. in London. Shugg forecast a gap of $55.7 billion, the closest in a Bloomberg News survey. Still, “we are close to the peak. The weakness in the U.S. dollar will help and the economy will be slowing.”

Economists expected the deficit to widen to $53 billion for the month compared with a previously reported $51.6 billion gap in September, according to the median estimate of 64 forecasts in a Bloomberg News survey. The previous record gap was $55.3 billion, reached in June.

The dollar fell against the euro to $1.3326 at 8:31 a.m. in New York, from $1.3310 late yesterday. The dollar has declined 6.6 percent against the euro and 4.7 percent against the Japanese yen this quarter, partly on worries the U.S. will find it difficult to attract enough international investment to compensate for the widening deficit.

Federal Reserve

The strength of the economy, evidenced in part by the rise in imports, helps explain why Federal Reserve policy makers today are forecast to raise their benchmark interest rate a quarter point to 2.25 percent. Central bankers, at their Nov. 10 policy meeting, said the economy was growing at a “moderate pace” and monetary policy “accommodation can be removed at a pace that is likely to be measured.”

Imports rose 3.4 percent for the month to an all-time high of $153.5 billion. The rise was the largest since November 2002.

The value of U.S. oil imports increased in October to a record $13.2 billion from $11.4 billion the previous month. The nation imported 315.8 million barrels for the month compared with 303.6 million barrels. The increase also reflected the ability of tankers to reach ports in the Gulf of Mexico after hurricanes disrupted deliveries the previous month.

Excluding Petroleum

Cheaper oil may help narrow the deficit in November. The price of imported crude oil dropped 6.8 percent last month, the Labor Department reported last week. Excluding petroleum, the U.S. trade deficit widened to $39.6 billion in October from $37.4 billion.

Americans bought 5.4 percent more foreign-made consumer goods and businesses spent 0.3 percent more on capital goods. Imports of autos and parts fell 1.1 percent in October.

The trade deficit with China widened to $16.8 billion from $15.5 billion. Imports rose to a record $19.7 billion from $18.4 billion. Exports rose to $2.94 billion from $2.86 billion.

Consumer spending rose 0.7 percent in October after a 0.6 percent gain the previous month, a government report showed earlier this month. Retail sales unexpectedly increased for a third month in November, suggesting shoppers entered the peak of the holiday buying season in a mood to spend, a report yesterday showed.

The spending increases follow a 5.1 percent annual rise in consumer purchases last quarter, the most in almost three years, a separate report showed.

Nintendo

Kyoto, Japan-based Nintendo Co., the world’s biggest maker of hand-held game machines, said earlier this month that U.S. sales of its DS hand-held console were “faster than anticipated” in the week following its Nov. 21 debut. The company sold 500,000 units of the dual-screen devise in the U.S., 90 percent of the available inventory.

The U.S. economy, the world’s largest, will probably grow 3.5 percent next year, according to the median estimate of economists surveyed this month by Blue Chip Economic Indicators this month. Japan, the second biggest, is projected to grow 2.2 percent and the 12-nation euro zone may expand 2 percent, according to the survey.

Exports rose 0.6 percent to $98.1 billion in October from $97.5 the previous month. U.S. exports of consumer goods held at $8.8 billion. Foreign businesses also bought 0.3 percent more capital goods.

U.S. Dollar

A drop in the value of the dollar may also be contributing to the gains in exports. A cheaper dollar makes U.S.-made goods less expensive to foreign buyers.

The dollar is down 3 percent this year against a trade- weighted basket of currencies from the nation’s biggest trading partners, according to Fed figures. The decline includes a 6 percent drop against the euro and a 2 percent decrease against the yen.

“We particularly see strength in Asia,” said Edward Campbell, chief executive at Nordson Corp., which makes machinery that applies adhesives, in an interview Dec. 9. “There is great investment in global manufacturing, particularly in east Asia and China. That Asian expansion is really fueling our growth.”

Westlake, Ohio-based Nordson’s sales volume was up 17 percent in the quarter ended Oct. 31 compared with the same period last year, the company said last week. It gets two-thirds of its revenue from outside the U.S.

Chinese Yuan

Emerson Electric, the world’s largest maker of power supplies for telecommunications systems, said last month that fourth- quarter profit increased 28 percent compared with the same period last year as sales improved. Sales rose 30 percent in China and 10 percent in Latin America.

Because the U.S. imports about 50 percent more goods and services than it exports, exports have to grow that much faster just to stabilize the trade deficit, according to Stephen Roach and other economists.

“The United States is unlikely to export its way out of its trade quagmire by a currency-induced improvement in competitiveness,” said Roach, chief economist at Morgan Stanley in New York, in a research report yesterday.

Another obstacle is that the dollar has a fixed exchange rate against some currencies. China has pegged the value of the yuan at about 8.3 to the dollar since 1995. U.S. manufacturers have complained that artificially depresses the yuan’s value, giving Chinese producers an unfair advantage over American rivals by making their goods cheaper abroad.

Other Regions

Trade deficits contribute to a widening gap in the current account, the broadest measure of international transactions. The current account, due from the Commerce Department in two days, is forecast to rise to a record $170.4 billion deficit for the third quarter. The wider gap puts the dollar at risk because the nation needs to attract more and more foreign capital to finance the shortfall.

By region, the Commerce Department reported that the trade deficit with Japan narrowed to $5.9 billion from $6.1 billion. The deficit with the Organization of Petroleum Exporting Countries widened to a record $7.2 billion from $6.7 billion.

Elsewhere, the trade deficit with Asia’s newly industrialized countries widened to $2.51 billion from $2.49 billion. The deficit with Canada, the largest U.S. trading partner, widened to $5.6 billion from $5.2 billion. The gap with Mexico widened to $4.4 billion from $3.8 billion. The deficit with Western Europe widened to $9.9 billion from $7.9 billion.