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Tuesday, July 13, 2010

Trade Imbalance Back

Marketwatch details:

The U.S. trade deficit widened to the highest level in 18 months in May as imports and exports alike bounced back after declines in April, government data showed Tuesday. The deficit, the difference between the nation's exports and imports, reached $42.3 billion in May from $40.3 billion in April, the Commerce Department said.

It marked the largest trade gap since November 2008. The one-month worsening in the deficit is the biggest since February. The widening of the deficit confounded expectations. Analysts surveyed by MarketWatch had expected the May gap to narrow to $38.8 billion.

The larger-than-expected trade gap may cause economists to reduce their forecasts for second-quarter gross domestic product. A worsening trade gap is a drag on growth.


For more detail on the "why" of this increase, Michael Pettis has a great post explaining it here. The high level summary:
I have little doubt that as the US trade deficit rises, a lot of finger-wagging analysts will excoriate US households for resuming their spendthrift ways, but of course the decline in US savings and the increase in the US trade deficit will have nothing to do with any change in consumer psychology or cultural behavior. It will be the automatic and necessary consequence of the capital tug-of-war taking place abroad.
Source: Census