July 13, 2006	Thursday	Jumadi-ul-Sani 16, 1427

WASHINGTON, July 12: The US trade deficit increased slightly to $63.8bn in May as record oil imports offset growth in exports, the Commerce Department said on Wednesday.

The deficit rose 0.8pc from April’s $63.3bn, but it was not as bad as the average estimate of economists of $65bn.

Analysts offered a mixed view of the latest report, which suggested some improvement in the balance of payments if oil is taken out of the equation.

Economist Robert Brusca at FAO Economics said the US trade picture “is improving” despite the modest uptick in the deficit.

“The non-oil trade really seems to be turning a corner thanks to stronger growth abroad and a tempering of US demand by high oil prices themselves,” he said.

The report comes a day after the White House reduced its estimate for the federal budget deficit, which along with the trade gap make up the “twin deficits” that have been pressuring the US dollar.

Economists said the report suggests exports, led by an increase in US aircraft sales, are making up a larger component of US economic activity as consumer spending cools.

“I think this is good news,” said John Lonski, chief economist at Moody’s Investors Service.

Lonski said he sees the trade deficit improving further “in part because we would look for a slower pace of consumer spending in the United States which would curb the growth of imported products.”

Others said the trade gap remains far too high and poses risks for the US and global economy.

“We keep shipping more and more of our income overseas and while we are also selling more, the outflow is simply way too high,” said Joel Naroff of Naroff Economic Advisors.

“As long as the rest of the world is willing to trade ugly green pieces of paper (or electronic digits) for real goods, the huge gap can be maintained,” Naroff said.

“As the in-phase world expansion continues and investment opportunities around the world expand, we will likely see the appetite for US assets decline. This could put further pressure on the dollar and on interest rates. That is a real nightmare scenario for the Fed.”

Despite the better-than-expected report, the deficit since the start of the year is $317.9bn, ahead of the pace at this time last year of $281.7bn. At the same pace, the US would break last year’s record 12-month deficit of $717bn.

Peter Morici, a University of Maryland economist, said he sees no improvement and possibly a worsening of the deficit.—AFP