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Trade deficit sours Original Source Link: (May no longer be active)
http://apnews.myway.com/article/20040813/D84EBU4G0.htmlhttp://apnews.myway.com/article/20040813/D84EBU4G0.html
Wholesale Prices Up, Trade Deficit Soars
Aug 13, 9:15 AM (ET)
By MARTIN CRUTSINGER
WASHINGTON (AP) - Wholesale prices edged up just 0.1 percent in July as a big drop in food costs offset the biggest increase in energy prices in six months while the nation's trade deficit soared to an all-time high in June.
The Commerce Department reported Friday that the trade deficit surged to a $55.82 billion in June, a sharp 19.1 percent increase from a May imbalance of $46.88 billion.
The June deficit was har higher than economists had been expecting. It reflected a rise in imports, pushed up by surging energy costs and a drop in U.S. exports.
The small increase in the Labor Department's Producer Price Index last month, released separately by the Bureau of Labor Statistics, followed a 0.3 percent decline in June as price pressures at the wholesale level have shown a sharp moderation over the past two months following sizable increases earlier this year.
The small July increase reflected a 1.6 percent decline in food costs, the biggest one-month drop in more than two years, reflecting cheaper costs for beef and dairy products. Food costs had also fallen in June after three months of big increases.
The price moderation last month did not extend to energy, which shot up by 2.3 percent in July, the largest gain since a 4.7 percent rise in January. Energy costs had fallen by 1.6 percent in June. Last month's sharp turnaround reflected higher gasoline costs, which rose by 5.4 percent in July after having posted a 5.2 percent decline in June.
With crude oil prices hitting record levels this week, spiking above the $45 per barrel mark, analysts are predicting that the prices paid by consumers for gasoline and other energy products will be headed higher in coming months.
Democratic presidential nominee Sen. John Kerry has raised the soaring price of energy as a campaign issue, one part of his economic indictment against President Bush.
In remarks prepared for delivery Friday at a campaign stop in Eugene, Ore., Kerry said, "When we have gas prices going through the roof, the Americans I've met don't think we've turned the corner."
The Bush administration counters that the president has an energy plan designed to lower America's dependence on foreign oil but it has been blocked in Congress by Democrats who do not want to expand oil drilling in Alaska.
The surge in energy costs this year has acted as a major drag on growth by forcing consumers to spend more on filling up their gas tanks than on other products. The overall economy, as measured by the gross domestic product, slowed to a growth rate of just 3 percent in the April-June quarter, far below the 4.5 percent pace in the first three months of the year.
In an effort to make sure that inflation does not become a problem, the Federal Reserve raised a key short term interest rate by a quarter point on Tuesday, its second rate increase this year.
Fed officials signaled that further rate increases would occur at a "measured" pace which economists have read as an indication that the Fed will make quarter point moves at its final three meetings of the year in September, November and December.
Federal Reserve Chairman Alan Greenspan told Congress last month that the "soft patch" the economy encountered in the early summer should be short-lived.
However, private economists are worried that the continued rise in energy costs, which act like a tax on consumers, will further depress consumer spending in the months ahead and could jeopardize the economic recovery.
The trade report showed that imports rose by 3.3 percent to $148.64 billion in June, an increase that was led by a huge jump in the nation's foreign energy bill, which rose to $15.22 billion in June compared to $13.74 billion in May.
U.S. exports fell by 4.3 percent in June to $92.82 billion, the lowest level in four months, reflecting broadbased weakness across a number of categories of manufactured goods.
America's trade deficits with its major trading partners rose in June. The deficit with China jumped to $14.2 billion, the highest in history, while the deficit with Japan rose to $6.27 billion and the deficit with European countries using the euro currency rose to $7.85 billion. The deficit with Canada rose to $6.63 billion and the trade gap with Mexico widened to $4.9 billion.
The Kerry campaign contends that Bush's free trade efforts have led to huge trade deficits and cost millions of American manufacturing jobs as more companies move production overseas to low-wage countries.
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