Thursday, March 09, 2006

Trade gap widens.........

Trade gap widens in January to record $68.5 bln
Thu Mar 9, 2006 12:35 PM ET


By Doug Palmer

WASHINGTON (Reuters) - The U.S. trade deficit swelled to a record $68.5 billion in January, as America's ravenous appetite for foreign goods hit new heights and overpowered record exports, a government report showed.

The monthly trade gap widened 5.3 percent from a revised estimate of $65.1 billion in December and surprised Wall Street analysts who had forecast less of a surge.

It prompted renewed calls for government action -- ranging from tougher enforcement of U.S. trade laws to a surcharge on manufactured goods imports -- to narrow the gap.

The January trade gap followed the record annual trade deficit of $723.6 billion in 2005.

Another annual record of more than $800 billion would be set in 2006 if the trade gap continued to run at the pace set in the first month of the year.

"The trade deficit, if you can still use the term deficit to describe the GDP of a small country, just keeps getting wider. This is the Energizer bunny on steroids as it keeps growing and growing and growing," said Joel Naroff, president and chief economist of Naroff Economic Advisors.

The January gap was "little short of a disaster" that could trim U.S. economic growth in the first quarter if it remains as large in coming months, said Paul Ashworth, senior international economist at Capital Economics.

Economists estimated economic growth could be trimmed up to 1 percentage point if the trade gap does not narrow.

Major financial markets shrugged off the trade data, instead focusing on monetary policy changes in Japan and the U.S. employment report scheduled for Friday.

Sen. Byron Dorgan, a North Dakota Democrat, linked the enormous shortfall to the Bush administration's controversial decision to allow a state-owned Dubai company to take over some terminal operations at U.S. ports.

"The only way for the United States to keep financing $2 billion a day in trade deficits is to sell off U.S. assets and now that apparently includes our security assets," he said.

Dubai Ports World acquired the rights to manage the ports as part of its acquisition of British company P&O.

U.S. imports rose 3.5 percent in January to a new high of $182.9 billion, as American companies and consumers lapped record volumes of foreign goods in categories ranging from food, animal feed and beverages to autos and auto parts.

High prices for imported oil, which increased more than 4 percent in January to $51.93 per barrel, helped push the trade gap to a new high. The United States ran an $8.4 billion deficit with the Organization of Petroleum Exporting Countries, growing 11.6 percent from December.

However, many analysts focused on the trade gap for non-petroleum goods, which was a record $49.6 billion.

"You can't blame it all on energy because the trade deficit excluding petroleum rose faster than the overall deficit. The main culprit once again continues to be that imports are growing faster than exports," said Michael Sheldon, chief market strategist at Spencer Clarke in New York.

The monthly trade gap with China widened 9.9 percent to $17.9 billion in January as U.S exports to that country slipped and imports grew.

The persistent deficit with China, the largest U.S. gap with any single country, has fueled charges in Congress that China is an unfair trader that manipulates its currency to gain a trade advantage. Manufacturers and politicians have demanded that Beijing revalue its yuan currency.

In a sign of improved economic growth overseas, U.S. exports increased in January to a record $114.4 billion, up 2.5 percent from the prior month. The export rise was led by record shipments of industrial supplies and materials, capital goods and auto and auto parts.

Although exports have risen steadily in recent years, they have not been able to match the growth in imports, keeping the trade deficit on an ever-widening path.

Separately, a Labor Department report showed the number of Americans filing new claims for unemployment benefits rose unexpectedly last week to 303,000, the highest level since the start of the year, from 295,000 the prior week. Economists had expected claims to fall to 290,000.

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