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U.S. trade gap widens
August 17, 2001: 9:44 a.m. ET

June spread between imports and exports grows, but is near forecasts
graphic graphic
NEW YORK (CNNfn) - The U.S. trade deficit widened slightly in June, the government said Friday, a sign of continuing weakness in the world's largest economy just days before the Federal Reserve meets to discuss interest rates.

The nation's trade gap grew to $29.4 billion from a revised $28.47 billion in May, the Commerce Department reported. Economists polled by had expected a deficit of $29.5 billion.

The growing gap between imports and exports could lead the Commerce Department to cut its estimate for second-quarter gross domestic product (GDP), possibly even into negative territory.

"We're just now realizing how badly off the economy was in the second quarter," said Mark Vitner, economist at First Union Corp. "The wider trade gap, along with the weakness we saw in the business inventory numbers that came out this week and weaker construction spending, will probably result in a second-quarter revised GDP number that will be zero or even slightly negative. It will be an eye-opening number, but it's no more worrisome than what we've seen."

Separately, the University of Michigan's preliminary consumer sentiment index, a key measure of consumers' confidence in the economy, rose to 93.5 in August from a revised 92.4 in July, according to a Reuters report, indicating consumers are keeping the faith despite a year-long economic slowdown and hundreds of thousands of job cuts. Analysts polled by expected the index to fall to 92.

Wall Street yawned at the reports, as stocks opened lower, suffering from the latest round of bad corporate news, and interest-rate sensitive U.S. Treasury bond prices rose.

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The Federal Reserve meets Tuesday to discuss whether or not to cut its target for short-term interest rates again this year. It has slashed rates six times so far in an effort to keep consumers spending and avoid a recession, which is defined as two consecutive quarters of negative GDP.

So far, it has succeeded in keeping economic growth above water, although the Commerce Department's first estimate of second-quarter GDP of 0.7 percent was made without several data, including trade and business inventories, that could take strength out of the GDP number. Still, not all economists are certain that even the weak second quarter had negative GDP.

"[The data] came right in [line with] what the Commerce Department was estimating, and it won't have any impact on the GDP equation," Lehman Brothers economist Drew Matus said.

Sluggish business investment has been one of the main factors holding back U.S. economic growth, and the slowdown in June trade was concentrated in capital goods, expensive manufactured items and equipment that businesses buy to boost output and productivity.

Exports of goods and services fell by 2 percent to $86 billion in June as economic turmoil overseas sapped demand. U.S. manufacturers also have complained that the value of the dollar is too strong, making their goods expensive abroad. They have been pressing the Bush administration to take steps to change that, but with little success.

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Meanwhile, imports of goods and services, hurt by flagging demand because of the ailing U.S. economy, declined in June by 0.7 percent to $115.4 billion. June exports and imports both were the lowest since February 2000.

The drop in exports was due to declines in capital goods, consumer goods and industrial supplies, while the imports decline was led by industrial supplies and capital goods.

The trade picture with major trading partners was mixed. The gap with Western Europe fell slightly, even though exports dropped substantially. The trade gaps with China and Japan grew, however, and the trade deficit with Mexico, at $3.12 billion, was the largest on record. graphic

- from staff and wire reports


U.S. CPI index falls in July - Aug. 16, 2001

U.S. business inventories fall in June - Aug. 15, 2001

A strong dollar is not all bad for the U.S. economy - Aug. 15, 2001

2Q GDP at 0.7 percent, weaker than expected - July 27, 2001

U.S. trade gap shrinks in May; leading indicators rise - July 19, 2001

Fed cuts interest rates a quarter point; sixth cut in 2001 - June 27, 2001


Trade gap report

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