Exports Fall to Six-Month Low, U.S. Trade Deficit Continues to Grow

The U.S. trade deficit widened in August from July because exports fell to the lowest level in six months. This, of course, puts a drag on already-weak economic growth.

The deficit grew 4.1 percent to $44.2 billion in August, the biggest gap since May, the Commerce Department said Thursday. Exports dropped 1 percent to $181.3 billion. Demand for American-made cars and farm goods declined.

Imports edged down a slight 0.1 percent to $225.5 billion. Purchases of foreign-made autos, aircraft and heavy machinery fell. The cost of oil imports rose sharply.

“[W]ho needs global trade when you have toner cartridge, and generally ink, the US trade deficit in August rose by 4.1% to $44.2 billion, on expectations of a deterioration to $44.0 billion,” Zero Hedge sarcastically quips, referring to the Fed’s penchant for printing.

A wider trade deficit acts as a drag on growth. It typically means the U.S. is earning less on overseas sales of American-produced goods while spending more on foreign products.

Trade contributed to the tepid 1.3 percent annual growth rate in the April-June quarter. But Steven Wood, chief economist at Insight Economics, predicts that trade will not help economic growth in the July-September quarter and that the weaker exports could actually detract from it.

Most economists don't expect the economy to grow much more than 2 percent for the rest of the year.

The trade deficit is running at an annual rate of $561.6 billion, up slightly from last year's $559.9 billion imbalance.

American manufacturers have been hampered by slumping economies in Europe, China and other key export markets. Many European countries are recession. The region accounts for about one-fifth of U.S. exports.

For August, the deficit with China dipped 2.3 percent to $28.7 billion. U.S. exports edged up modestly, while imports from China fell. For the year, the U.S. deficit is on track to surpass last year's record, the highest ever recorded with a single country.

The deficit with the European Union fell 2 percent in August to $11.7 billion. U.S. exports to the region outpaced imports. However, economists expect U.S. sales to Europe to weaken in coming months.

The U.S. deficit with Japan fell 1.4 percent in August to $6.7 billion. American exports to Japan rose to the highest level since March 1996.

The International Monetary Fund this week projected global growth of just 3.3 percent for the year and 3.6 percent in 2013. The downgrade from its July forecast reflected disappointing growth in the United States, spreading recessions in Europe and a sharp slowdown in China.

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The Associated Press contributed to this report.