US trade deficit widens to record $48bn

The US trade deficit widened to a record $48.3 billion ( €40.06 billion) in April, putting a bigger drag on economic growth than expected and further damping hopes that the trade gap is set to narrow.

The deficit was up from $46.6 billion in March and was $5.8 billion higher than in April 2003.

Economists said that, with the dollar reviving in response to expectations of higher interest rates, there was little chance that the trade gap would start to close over the next 12 months. The swelling US deficit is the most obvious manifestation of imbalances in the world economy, with the US economy outpacing growth in the euro zone and Japan.

For the US administration, the deficit has underlined the need for other economic blocs to do more to bolster demand.

The figures coincided with the issuing of data showing a rebound in retail sales, which rose by 1.2 per cent in May after a decline of 0.6 per cent in the previous month.

Surging auto sales and high petrol prices were largely responsible for the jump.

The US economy looks likely to continue sucking in ever greater volumes of overseas goods because of strong demand from US consumers, economists said.

Mr David Ingram of consultancy Economy.com said several other factors would also push the deficit higher.

"The deficit with Asia in general and China in particular will only get larger if China's efforts to slow its economy are successful," he said. "In addition, with the restoration of business investment, the US economy is firing on all cylinders and is absorbing a great deal of resources from abroad."

The stabilisation of the dollar, which came under heavy pressure last year, is also expected to postpone any adjustment of the US trade position.

The trade-weighted dollar rose by 0.75 per cent during April, but was 5.7 per cent lower compared to the same period last year.

Economists are hopeful that consumer spending will also hold up, although yesterday's retail sales figures presented mixed signals.

The bulk of the 1.2 per cent rise came from car sales, up 2.7 per cent, suggesting that Americans remain willing to spend on big-ticket items.

However, car sales tend to be volatile and the recent rises may be moderated by rising interest rates.

Economists also expect spending to be held in check by near-record debt levels and a lack of pent-up demand.

Nevertheless, a pick-up in the labour market is widely expected to help keep US consumption relatively robust.