U.S. Trade Gap Probably Widened as Cost of Imported Oil Soared

By Courtney Schlisserman
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Aug. 12 (Bloomberg) -- The U.S. trade deficit probably widened in June to the highest level in more than year as the cost of imported oil soared, economists said ahead of a government report today.

The gap increased to $62 billion, the most since March 2007, from $59.8 billion in May, according to the median of 71 forecasts in a Bloomberg News survey.

Crude oil rose in June on its way to the record $147.27 a barrel reached in the middle of last month, overshadowing gains in exports. Slowing economies abroad signal the U.S. may not be able to keep counting on overseas demand after trade last quarter made its biggest contribution to growth in 28 years.

``The outlook for growth outside the U.S. has taken a decisive turn for the worse,'' said Michael Feroli, an economist at JPMorgan Chase & Co. in New York. ``The U.S. export machine will make a much smaller contribution to growth.''

The Commerce Department is scheduled to release the report at 8:30 a.m. in Washington. Estimates of the deficit ranged from $58 billion to $65.7 billion.

By the end of June, crude oil futures traded on the New York Mercantile Exchange had risen 46 percent for the year. Prices have retreated from July's record, ending last week at $115.20 a barrel.

``It's more of an oil story boosting imports because of higher prices,'' Jonathan Basile, an economist at Credit Suisse Holdings Inc. in New York.

Adjusted for Inflation

Excluding the effect of prices, the trade balance probably showed that exports continued to grow and imports slowed, said Jay Bryson, global economist at Wachovia Corp. in Charlotte, North Carolina.

The narrowest trade deficit in seven years added 2.42 percentage points to second-quarter economic growth, the most since 1980, and prevented the economy from shrinking, the Commerce Department estimated on July 31. Excluding trade, gross domestic product would have contracted at a 0.5 percent pace instead of expanding 1.9 percent.

Foreign demand has helped some U.S. manufacturers weather the domestic slowdown.

Caterpillar Inc., the world's largest maker of earthmoving equipment, said July 22 that second-quarter profit climbed 34 percent, helped by demand in China and the Middle East. Developing markets this year may grow more than six times as fast as in North America, where the U.S. may find it hard ``to avoid a recession,'' Chief Executive Officer Jim Owens said in a statement.

Demand Overseas

Caterpillar's exports rose 30 percent in the quarter, Chief Financial Officer David Burritt said in an interview.

U.S. exports have also received a boost from a drop in the value of the dollar, which was down 7.7 percent against a trade- weighted basket of currencies of major trading partners in the 12 months ended in June. The drop has helped make U.S.-produced goods cheaper overseas.

As economic growth in Japan, Germany and other major trading partners weakens and the dollar rebounds, the outlook for exports has cooled. The trade-weighted dollar index yesterday rose to the highest level since February.

The Institute for Supply Management's index of new export orders for manufacturers fell to 54 last month, the lowest level this year. Fifty is the dividing line between expansion and contraction.

``Hopefully that's a one-month event,'' Norbert Ore, chairman of the ISM's manufacturing survey said Aug. 1 on a conference call with reporters. ``Were it not for exports at this point, I think I would take the position manufacturing overall would be in a significant recession.''

The coming slowdown in exports and imports means trade will boost U.S. growth by about 0.5 percentage point over the next year, one-third as much as in the previous 12 months, according to an estimate by JPMorgan's Feroli.

Bloomberg Survey

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                             Trade  Federal
                           Balance   Budget
                            $ Blns   $ Blns
================================================
Date of Release              08/12    08/12
Observation Period            June     July
------------------------------------------------
Median                       -62.0    -90.0
Average                      -62.0    -86.8
High Forecast                -58.0    -47.0
Low Forecast                 -65.7   -105.0
Number of Participants          71       33
Previous                     -59.8    -36.4
-----------------------------------------------=
4CAST Ltd.                   -62.2   -102.0
Action Economics             -65.0   -102.0
AIG Investments              -63.5     ---
Argus Research Corp.         -61.2     ---
Banc of America Securities   -61.0    -90.0
Bank of Tokyo- Mitsubishi    -61.9   -100.0
Barclays Capital             -63.5     ---
BMO Capital Markets          -61.0    -68.6
BNP Paribas                  -61.4    -90.0
Briefing.com                 -59.0     ---
Calyon                       -63.0   -102.0
CIBC World Markets           -59.5     ---
Citi                         -62.0    -90.0
ClearView Economics          -61.0     ---
Commerzbank AG               -62.0     ---
Credit Suisse                -62.0     ---
Daiwa Securities America     -62.0   -100.0
DekaBank                     -61.5     ---
Desjardins Group             -62.2    -80.0
Deutsche Bank Securities     -62.0    -85.0
Deutsche Postbank AG         -61.5     ---
Dresdner Kleinwort           -62.1    -87.0
DZ Bank                      -61.5     ---
First Trust Advisors         -60.0   -102.0
Fortis                       -61.0     ---
FTN Financial                -60.5     ---
Global Insight Inc.          -64.3     ---
Goldman, Sachs & Co.         -62.5   -105.0
H&R Block Financial Advis    -63.0     ---
Helaba                       -61.0     ---
Horizon Investments          -61.0     ---
HSBC Markets                 -63.5     ---
IDEAglobal                   -61.0    -65.0
Informa Global Markets       -62.0     ---
ING Financial Markets        -62.7    -70.0
Insight Economics            -62.0   -100.0
Intesa-SanPaulo              -63.0     ---
J.P. Morgan Chase            -62.1   -102.0
Janney Montgomery Scott L    -62.5    -95.0
JPMorgan Private Client      -60.8     ---
Landesbank Berlin            -58.0     ---
Landesbank BW                -60.0     ---
Lehman Brothers              -62.0    -75.0
Lloyds TSB                   -61.0    -47.0
Merk Investments             -61.5    -83.7
Merrill Lynch                -65.7    -56.0
MFC Global Investment Man    -62.5     ---
Moody's Economy.com          -62.9     ---
Morgan Stanley & Co.         -62.0    -95.0
National City Corporation    -59.8     ---
Natixis                      -62.1     ---
Nomura Securities Intl.      -60.5    -97.0
Nord/LB                      -61.0     ---
PNC Bank                     -62.0     ---
RBS Greenwich Capital        -64.5   -100.0
Ried, Thunberg & Co.         -63.0   -100.0
Schneider Trading Associa    -62.3    -47.0
Scotia Capital               -64.0     ---
Societe Generale             -62.2     ---
Standard Chartered           -61.5     ---
Stone & McCarthy Research    -63.0   -105.0
TD Securities                -61.5     ---
Thomson Financial/IFR        -61.0    -59.0
UBS Securities LLC           -62.5   -105.0
Unicredit MIB                -60.0     ---
University of Maryland       -64.2     ---
Wachovia Corp.               -61.9     ---
Wells Fargo & Co.            -65.0     ---
WestLB AG                    -62.0    -69.0
Westpac Banking Co.          -61.0     ---
Wrightson Associates         -63.0    -90.0
================================================

To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net