URL - http://online.wsj.com/article/0,,SB106328317180701400,00.html
U.S. Trade Deficit Widens As China Imports Hit Record
Initial Jobless Claims Rise For a Third Straight Week
A WALL STREET JOURNAL ONLINE NEWS ROUNDUP
WASHINGTON -- The U.S. trade gap widened in July as imports from China and of crude oil both hit record highs, while jobless claims rose by 3,000 to 422,000 last week, the third consecutive increase.
The U.S. deficit in international trade of goods and services rose 0.7% to $40.32 billion from a revised $40.04 billion in June, the Commerce Department reported Thursday. Economists had expected a deficit of $41 billion.
Imports and exports both increased but the dollar amount of imports was larger than the value of exports, thus widening the monthly trade gap. Imported goods and services rose 1.6% to $126.5 billion, the second-highest level on record, from June. Exports climbed 2% to $86.1 billion, the strongest showing since May 2001.
The China Factor
America's politically sensitive trade deficit with China widened by 13.5% during the month to a record $11.3 billion. Imports from the country totaled $13.4 billion, also a high.
In a visit to China last week, Treasury Secretary John Snow pressed the administration's case for letting China's yuan -- also known as the renminbi -- to trade freely on world markets. U.S. manufacturers and other critics say China's fixed exchange rate is protectionist and that it makes goods produced in China less expensive on world markets and makes foreign imports too costly for Chinese consumers. Critics contend that China's currency policy amounts to an unfair trade advantage and draws manufacturing jobs away from the U.S.
Elsewhere, the U.S. trade gap with Western Europe expanded to a record $11.17 billion from $7.96 billion in June, while the deficit with Japan increased to $5.9 billion from $5.4 billion. The trade deficit with Canada widened to $5 billion, the highest since January 2001.
Crude-oil imports hit a record 339.7 million barrels, from 311.9 million barrels in June. The price of crude oil rose to $26.70 a barrel from $25.50 the previous month.
Meanwhile, initial jobless claims hit a two-month high last week, the third straight weekly increase, as employers remain reluctant to hire despite the recent acceleration in economic growth.
Initial claims increased by 3,000 to 422,000 in the week that ended Saturday, the Labor Department reported Thursday. This marked the second week in which initial claims have been higher than 400,000, a level associated with a weak labor market. The four-week average, which smoothes out weekly fluctuations, rose by 4,500 to 402,750.
Economists had expected claims to drop by 13,000, according to a survey by Dow Jones and CNBC. A Labor Department statistician said the Aug. 14 blackout in the Northeast and Midwest had no further effect on the numbers.
"We're in a transition here, and the last place you see that is in the labor market," said James Glassman, an economist with J.P. Morgan. "It takes a few months for people to start changing their plans." He said the labor market is likely to improve later this year.
Room for Another Cut
A third report suggests the Federal Reserve has leeway to cut interest rates to sustain the economic recovery. In the first of three reports on inflation to be released over the next week, the Labor Department said import prices in August rose at their slowest pace in three months.
Fed Governor Ben Bernanke has said the central bank may need to cut rates again if the labor market doesn't improve. However, the Fed isn't expected to make such a decision when top policy makers meet next Tuesday.
Import prices during the month climbed 0.2%, less than half the rate recorded in July. Economists had expected an increase of 0.3% to 0.4%.
The price drop largely reflected a 0.2% decline in nonpetroleum prices, indicating that external inflationary pressures on the economy continue to wane. Petroleum prices increased 3.9%, less than July's 4.5% gain.
In most major nonpetroleum categories, prices declined. The price of nonpetroleum industrial supplies and materials fell 0.6%, the first drop in three months. Prices of capital goods slipped 0.1%, while prices of consumer goods shed 0.2%, the first decline since February. But automobile prices edged up 0.1%.
August producer prices are due out on Friday, and consumer prices are slated for release on Tuesday.
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