U.S. Trade Balance deficit widens by 4.8 percent, reaching -$42.3 billion
As per the pulse of economies online, the U.S. Commerce Department released the trade balance for the month of May, showing a widening deficit as imports exceeded exports. The results came worse than market expectations of -$39.0 billion as it reached -$42.3 billion throughout May.
The rise in the value of the U.S. dollar over the past period hammered down exports and led consumers to seek foreign made goods, causing demand on U.S. goods to drop domestically and globally due to the dollar’s appreciation against major currencies throughout the reported month where the Euro struck a four-year low against the dollar in trading as Greece’s debt problems suppressed the 16-nation currency and forced it to depreciate against most majors.
The trade deficit reached in May -$42.3 billion, compared with the prior deficit of -$40.3 billion, while the median estimates of markets were set at -$39.0 billion, the report showed that exports rose by 2.4% to $152.250 billion, yet imports rose by 2.9% to $194.516 billion.
The real dollar goods balance showed a widened deficit as well, where the deficit widened to $46.039 billion from the prior reported deficit of $44.171 billion, the trade balance also showed that oil imports dropped by 9.5% to -$2.190 billion, compared with the previous -1.6 percent that was reported a month earlier at -$0.371 billion.
The trade deficit widened by 4.8 percent due to the halt in trading activities in China, demand levels around the globe are yet to recover fully, where elevated unemployment around the globe hammered demand levels from consumers, however, signs of recovery started to emerge over the past few months, where global demand seems to be picking up, especially in Asian countries, where expectations now show that Asian countries will lead other economies into prosperity, but China’s slowing economic conditions over the past period caused the U.S. exports to China to suffer, where the deficit is considered the highest in nearly 10 months.
Europe’s debt problems and continuous downgrades to European countries debt rating by rating agencies are causing severe fluctuations in markets, especially the currency market, where the Euro dropped from an all time record high in January 2008 to reach in May a four-year record low against the dollar, accordingly, suppressing exports and cause the deficit in the trade balance report.
Moreover, the U.S. economy is recovering over a “Moderate” pace, which signals that demand and spending levels might witness a setback in the upcoming months and force the economy to witness a severe slowing in activities, as spending accounts for 2/3 of GDP.
Challenges still persist; where recently the Fed chairman, Ben Bernanke, stated that the economy might continue to recover from the worst financial crisis in decades, but the major threat remains within the labor sector as the economy might sffer from elevated unemployment levels for “years to come.”
Canada released its international merchandise trade report showing a drop in the month of May of -0.5 billion Canadian dollars, compared with market expectations of a flat reading and the previous revised drop of 0.3 reported a month earlier.
The rise in oil prices affects the Canadian economy where the country is a major oil exporter that gets affected by any rise in crude prices, in addition to the value of the Canadian dollar which is currently boosting exports, not to forget that the rise in economic conditions in the U.S. helps the Canadian economy’s conditions due to the fact that the U.S. economy is the biggest trading partner for Canada.
The Canadian economy still faces challenges where unemployment is still at high levels but overall, the Canadian economy is highly dependable on exports and the recovery process around the globe, accordingly, with global economic growth still facing challenges over the upcoming period, the central bank of Canada signaled in its April Monetary Policy Report that it revised the upcoming year’s growth forecast lower, from earlier expectations levels to range at 3.1 percent in the upcoming year and continue to drop further in 2012 to 1.9 percent, whereas the bank stated that growth continues to benefit from rising housing activities and the government's stimulus plans, while the strong Canadian dollar and low levels of U.S. demand along with dropping economic conditions in the labor sector in Canada continue to pose threats to the pace of the recovery.
The Canadian economy is expected to reach its long term growth potentials by mid-2010, according to the BoC, therefore, conditions will continue to improve in a gradual pace over the upcoming period that will enable the economy to reach those levels…
Please note, and as per FXstreet.com (Barcelona) - The Trade Balance of the European Union with the rest of the world fell to a €3.4Bn deficit in May 2010. markets forecast was at €0.5B deficit. The drop is even sharper in comparison with the previous revised reading of €0.3Bn surplus.

On the seasonally adjusted front, the Trade Balance dipped to a €3.0Bn deficit, driven by a rise in exports of 1.6% offset by an imports increase of 4.2%, according to official report. April's print of €1.4Bn surplus was expected to mildly go down to €0.8Bn surplus.