Friday, August 13, 2004

Can anybody say that they're really surprised by this revelation?
The U.S. trade deficit widened much more than expected in June, hitting a record $55.8 billion dollars as the biggest drop in exports in nearly three years combined with record imports, the government said on Friday.

Wall Street economists had expected the deficit to widen, but looked for a gap of just $47 billion. In its report, the Commerce Department also revised May's trade shortfall to $46.9 billion from the previously reported $46.0 billion.

The department said exports fell 4.3 percent to $92.8 billion in June, the biggest decline since September 2001 and the weakest performance since February.

At the same time, imports climbed 3.3 percent to an all-time high of $148.6 billion, partly reflecting a run-up in oil prices.
Let's review. The US trade balances for the three months of 2004:II were

April: -$48.1bn (second highest all-time)
May: -$46.9bn (third highest all-time)
June: -$55.8bn (highest all-time)

The grand total for the quarter is -$150.8bn, 10.1% higher than in 2004:I. So far this year the US trade balance is -$278.7bn, outrunning last year's record pace by 16% and surpassing 2002's deficit by 46%! US goods exports tanked in June after posted four consecutive months of robust gains, down 6.5% in a single month. Goods imports, in fact, rose in dollar terms almost exactly as much as goods exports fell, and the US services surplus continues to erode.

Recalling that second quarter GDP growth was down to 3.0% after a year of 5.1% growth, the current account deficit as a percentage of GDP promises to be huge. The current account balance for the quarter won't be released for another month, but the General will try to put together a likely scenario. If unilateral current transfers stay around -$20bn and investment income falls as Morgan Stanley thinks it will -- it was +$16bn in 2003:IV and +$13bn in 2004:I, so let's pick +10.0bn for net investment income just to run the numbers -- the current account balance for 2004:II may come in at -$161bn (for comparison's sake, it was -$145bn in 2004:I).

If so, that would put the 2004:II current account deficit at -5.5% of GDP. Wow.

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