Ahead of the Bell: Trade Deficit

AP News
Posted: May 10, 2012 6:11 AM
Ahead of the Bell: Trade Deficit

The U.S. trade deficit likely widened in March, reflecting strong consumer demand for autos and other products, and a higher foreign oil bill.

Economists forecast that the deficit increased to $50 billion in March from February, according to a survey by FactSet. The Commerce Department is scheduled to release the report at 8:30 a.m. Eastern time Thursday.

In February, the deficit narrowed to $46 billion, the lowest level in four months.

A narrower trade deficit is less of a drag on growth. It means businesses sold more American-made goods overseas while U.S. consumers bought fewer foreign-made products.

A wider deficit in March could lead the government to lower its estimate for January-March growth. Last month the government said the economy grew at an annual rate of 2.2 percent rate in the first three months of the year, down from 3 percent growth in the previous quarter.

The government issues its second of three estimates for first-quarter growth on May 31.

Slower growth in China and a likely recession in Europe could weaken demand for U.S. exports this year, which would drag on growth later in the year.

Europe's crisis has weighed on financial markets this week. U.S. stocks fell sharply Wednesday as borrowing rates climbed for Spain and Italy. That's a sign that investors are losing faith in the ability of those two nations to deal with their large government debts.

The U.S deficit trade deficit with China hit a record $295.5 billion in 2011.

With millions of Americans still unemployed, political pressure has grown in the United States to impose economic sanctions on China. Critics say China has undervalued its currency against the dollar. That has made Chinese goods cheaper in the U.S. and American products more expensive in China.

The United States and China held high-level talks last week in Beijing, but the economic talks were overshadowed by a dispute involving a Chinese dissident. China agreed to let foreigners own bigger stakes in its securities firms and make other concessions aimed at opening its huge and growing market to more U.S. and other foreign companies.

However, critics said the moves were unlikely to make a significant dent in the trade gap between the two nations. U.S. manufacturers contend that the Chinese currency is still significantly undervalued against the dollar, making Chinese goods cheaper for U.S. consumers and American products more expensive in China.