US trade gap grows as imports climb

THE US trade deficit widened much more than expected in January as surging imports of oil, capital goods and cars overpowered record exports in a signal of strengthening domestic demand.

The trade gap grew by 15.1 per cent to $46.3 billion from $40.3 billion in December, the Commerce Department said yesterday. Analysts had expected a deficit of $41.5 billion.

The shortfall in trade with China, a sore point in bilateral relations, grew 12.5 per cent to $23.3 billion.

With more domestic demand being sated by overseas production, some economists said they would likely reduce their forecasts for first-quarter US economic growth by about a half percentage point to about a 3 per cent annual rate.

Anthony Chan, chief economist for private wealth management at JPMorgan in New York said that pace would be “barely enough” to make headway in reducing unemployment. “We obviously would make a lot more progress at 3.5 per cent,” he said.

A second report from the labour department showed new claims for jobless benefits rose 26,000 last week to 397,000. While economists had looked for a smaller gain, they said the increase was not enough to suggest the labour market recovery was running off the rails.

The rise in claims, an unexpected swing to a trade deficit in China announced by Beijing and a ratings agency downgrade of Spain pushed US stocks lower, while Treasury debt prices rose. The dollar rose against the euro and the yen.

Oil prices shot up in January as economic recovery in the United States and the rest of the world picked up steam, and jumped significantly more last month on political turmoil in North Africa and the Middle East. Benchmark Brent crude yesterday was trading about $114 a barrel.

Reports today are expected to show gasoline prices helped lift US retail sales by 1 per cent in February, while pulling down consumer sentiment this month.

The Fed’s policy-setting panel is likely to nod to higher commodity prices in a statement after a meeting on Tuesday, but analysts feel officials will not see a grave enough threat to either growth or inflation to alter policy.

Increased non-oil imports in January also played a big role in the wider trade gap. – (Reuters)