US trade gap narrows in July

Washington : The US trade deficit probably narrowed in July as a slowing recovery prompted Americans to buy fewer goods from abroad, economists said before a government report yesterday.

The gap between imports and exports decreased to $47 billion (Dh 172.618 billion) from $49.9 billion the prior month, according to the median of 73 estimates in a Bloomberg News survey. A separate report may show initial jobless claims fell to a level that shows firings remain elevated.

Demand for overseas products may cool as American consumers and businesses curb spending in coming months, while growing foreign economies help support demand for US-made goods. Exports will probably be a source of strength for manufacturing as the world's largest economy tries to sustain a recovery from the worst recession since the 1930s.

"We would expect exports to continue to do well in the months ahead," said Jay Bryson, global economist for Wells Fargo Securities LLC in Charlotte, North Carolina. In the US, "there was restocking in the spring and that brought in a bunch of imports. At some point over the next few months some of that demand falls off".

The Commerce Department is scheduled to release the trade report at 8:30 a.m. in Washington. Estimates in the Bloomberg survey ranged from a gap of $43 billion to one of $52 billion.

The Labour Department will release its jobless claims report at the same time. Economists forecast claims declined by 2,000 to 470,000 last week, according to the median projection in a Bloomberg survey. The level compares with a 465,000 average this year and shows employment is stagnating.

The trade deficit swelled by a record $7.9 billion in June. A wider-than-estimated gap for the month was part of the reason the Commerce Department on August 27 revised down its estimate for second quarter growth to a 1.6 per cent annual rate from the previously projected 2.4 per cent. A final estimate for the quarter will be released September 30.

Signs companies are slowing the pace of inventory building and investment in new equipment indicate a cooling of demand for goods made abroad. Orders placed with US factories for business equipment fell 7.2 per cent in July, a September 2 Commerce Department report showed. Sales of such goods were down 1 per cent.

Smaller gains

While smaller gains in business spending may help limit imports to the US, the outlook for exports is holding up. A report last week showed manufacturing in China grew at a faster pace in August. The gain in the government-backed purchasing managers' index signalled the economy in China is stabilising after slowing.

Caterpillar, based in Peoria, Illinois, said last month it may add as many as 9,000 workers worldwide this year as sales climb in developing markets. The world's largest construction equipment maker said about 1,250 of the jobs the company has added so far have been in the US.

Shares of manufacturers have held up better than the broader market since the world's largest economy showed signs of cooling. The Standard & Poor's Supercomposite Machinery Index, which includes Caterpillar and Deere & Co., has climbed 15.7 per cent this year through Wednesday, compared with a 1.5 per cent drop in the S&P 500.

Manufacturing unexpectedly expanded at a faster pace in August as production picked up, a report from the Institute for Supply Management showed last week.