US trade deficit hits $56bn record as exports tumble

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The Independent Online

The US trade deficit soared to a record $55.8bn in June as exports plunged to their lowest level since 11 September 2001, putting further pressure on the country's economic recovery in the run-up to the presidential elections.

The US trade deficit soared to a record $55.8bn in June as exports plunged to their lowest level since 11 September 2001, putting further pressure on the country's economic recovery in the run-up to the presidential elections.

Economists rushed to slash their growth estimates for the second quarter to less than 3 per cent after separate data showed US consumer confidence is sliding.

The drop in exports was compounded by a 3 per cent jump in imports to an all-time high of $149bn, reflecting the spike in the oil price. Yesterday, oil prices climbed yet further, setting fresh records on both sides of the Atlantic. In New York, US light crude broke $46 a barrel, soaring 70 cents to $46.20, while in London, Brent crude hit $42.85.

The deficit rise wrongfooted Wall Street, which had predicted a deficit of $47bn. It is the latest in a string of deteriorating economic reports. The news will come as a blow to President George Bush, who was counting on a strengthening economy to buoy his re-election hopes.

US exports fell by 4.3 per cent to $92.8bn in June, their biggest monthly fall in nearly three years. "It's extraordinary, I've never seen this big a swing in one month", Kevin Logan, an economist at Dresdner Kleinwort Wasserstein in New York, said. He added that such an "extraordinarily" large deficit meant the dollar's recent strength looked unsustainable. The dollar dropped to a three-week low against the euro of $1.23, and slipped 2 cents against sterling to $1.84.

The closely watched University of Michigan survey of consumer confidence suggested record oil prices were preying on shoppers. The reading slipped to 94 for August from 96.7 in July, the lowest since May. Paul Ashworth, an international economist at Capital Economics, said: "There is still the potential for confidence to slip further if consumers begin to panic about the prospect of paying $2.20 a gallon for gasoline."

A cocktail of fears drove the oil price to yet another high. Traders said potential unrest in Venezuela on Sunday, when the country will vote on whether President Chavez should stay in office, could disrupt shipments - as could sabotage to Iraq pipelines. Meanwhile, a fire and an explosion at a BP refinery in the US only fanned concerns about supply disruption.

John Snow, the US Treasury Secretary, indicated yesterday that energy prices had created "headwinds" for the economy. He later said geopolitical uncertainty may have accounted for between $6 and $10 a barrel of the crude oil price.

The Federal Reserve blamed the rise in energy prices for restraining the economy when it tightened the US base rate to 1.5 per cent this week.

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