BUSINESS

US trade deficit grew slightly in July to $42 billion, but exports to Europe drop sharply

09/11/2012 09:43 EDT | Updated 11/11/2012 05:12 EST
WASHINGTON - The U.S. trade deficit grew slightly in July as exports fell at a slightly faster pace than imports.

The Commerce Department said Tuesday that the trade deficit widened to $42 billion, 0.2 per cent higher than June's imbalance of $41.9 billion.

U.S. exports fell 1 per cent to $183.3 billion, lowered by weaker sales of autos, telecommunications equipment and heavy machinery. Imports declined 0.8 per cent to $225.3 billion — oil imports fell 6.5 per cent.

A wider trade deficit acts as a drag on growth because the U.S. is typically spending more on imports while taking in less from the sales of American-made goods.

Weaker growth around the globe is hurting U.S. exports. Exports to Europe fell 11.7 per cent. Many European countries are recession, which has cut demand for American-made goods. The region accounts for about one-fifth of U.S. exports.

The deficit with China grew 7.2 per cent in July to $29.4 billion, the largest with any single country. That reflected a 5.6 per cent jump in imports, which vastly outpaced a smaller 0.4 per cent rise in U.S. exports.

China accounts for about 7 per cent of U.S. exports and has the second largest economy in the world. Still, its economy has weakened this year and may be worsening. On Monday, China reported that its imports from the rest of the world shrank in August.

Exports fell in other big emerging economies. U.S. sales of goods to Brazil fell 4.4 per cent, while exports to India dropped 1.2 per cent.

The overall U.S. economy grew at an annual rate of just 1.7 per cent in the April-June quarter, down from a 2 per cent rate in the January-March period and 4.1 per cent rate in the final three months of last year. Many economists believe growth will remain lacklustre for the rest of the year, partly because of diminished demand for U.S. exports.

Weaker growth is hurting the U.S. job market. American employers added just 96,000 jobs last month, down from an increase of 141,000 jobs in July and well below the average 226,000 jobs a month created from January through March. Manufacturing, which has been one of the few bright spots in this recovery, lost 15,000 jobs in August.

While the overall unemployment rate fell to 8.1 per cent from 8.3 per cent in July, the improvement came only because many people gave up looking for work and therefore were not counted in the government's calculations.

The weak unemployment report has lifted expectations that the Federal Reserve will approve more help for the U.S. economy at their meeting this week.