Economy

Widening trade gap adds to economic ills

by Vicki Needham - 08/11/10 4:12 PM ET

Exports declined and imports increased to a record high as the trade deficit expanded to $49.9 billion, an 18.8 percent increase in June compared to May. Imports grew 3 percent while exports dropped 1.3 percent, the most since April 2009, the Commerce Department reported Wednesday.

Economists forecasted a smaller trade gap and estimated the trade deficit could push second quarter economic growth below 2 percent, after the Commerce Department initially estimated 2.4 percent growth.

The higher trade deficit is likely to raise worries in Congress about trade and its impact on U.S. jobs. The nation’s unemployment rate stands at 9.5 percent, and hiring by business has been anemic.

Democrats have launched an effort to focus on helping U.S. manufacturers and workers in the run-up to the 2010 mid-terms. They are expected to hit Republicans for supporting the “out-sourcing” of U.S. jobs, a strategy the party employed in a special election campaign earlier this year in Pennsylvania.

The higher-than-expected jump in the trade deficit added to a run of depressing economic news that caused stocks on Wall Street to plummet on Wednesday. The Dow Jones Industrial average was down more than 200 points in mid-day trading.

The Federal Reserve on Tuesday downgraded its outlook for the economic recovery amid fears of a double-dip recession. It also announced it would use its proceeds from mortgage-backed securities to buy Treasury debt, which suggests it does not believe it can wind down its efforts to spur on the economy.

Falling sales of American computers and telecommunications equipment helped lower U.S. exports. Meanwhile, imports of consumer goods hit a record high as Americans bought more cell phones, household appliances, televisions and clothing.

Through the first six months of 2010, the deficit is running at an annual rate of $494.9 billion, up 32 percent from the $374.9 billion deficit for all of 2009.

U.S. manufacturing has provided a boost to the economic recovery as the job market has struggled to create jobs. Demand for American-made goods has increased in Asia but has lost momentum in Europe, as the region faces a debt crisis.

Exports also have taken a hit from the value of the dollar, which has risen against the euro.

This story was updated at 1:05 p.m.