Wall Street went into a panic Wednesday as the Commerce Department reported a sharp increase in the U.S. trade deficit in June. After narrowing in recent months, the U.S. trade deficit unexpectedly widened in June by a record $ 7.9 billion. Stocks nose-dived at the news. Analysts thought the U.S. economic recovery had slowed last quarter more than it really did. As the trade deficit won’t become sustainable, economists are more concerned about the recession going into a double-dip.
Dollar making June trade deficiency
According to the Commerce Department, this change within the deficit happened in June because those in the U.S. started purchasing cheaper exports from China, making the U.S. dollar stronger. $ 49.9 billion was where the gap went from $ 42.0 billion in May. It was expected the gap would get smaller because oil prices are going down, reports the Washington Post. There were more purchases of consumer products and auto parts from out of the country in June raising imports from the $ 194.4 billion it was in May to $ 200.3 billion. Exports then went down from $ 152.4 billion to $ 150.5 billion. In June, companies had a hard time selling their industrial supplies, food and consumer goods to anyone outside of the country.
Predictions for trade deficit wrong
73 economists predicted in a Bloomberg News Survey that $ 42.1 billion was going to be the trade deficit. Instead of a further decline from a $ 42.3 billion trade deficit in May, the gap increased 19 percent. Bloomberg reports the June trade deficit adjusted for inflation, which is the figure used to calculate gross domestic product, increased to $ 54.1 billion, the highest since February 2008 during the worst of the financial crisis. Estimates were reduced within the second quarter growth be 1.5 percent rather than 1 percent because of this.
Some say U.S. unemployment is a bigger problem}
Economists don’t agree on whether the trade deficit in June’s sudden and marked increase means the U.S. is in danger of heading into a double-dip recession. As outlined by the Christian Science Monitor, the trade deficit isn’t really as much of a problem as U.S. unemployment rates. Before the recession, deficits were still here but weren’t noticed as much. Consumer demand and business investment should be what we are focused on.
Others say trade deficit is the root of the U.S. unemployment problem
If global commerce is hurt as the U.S. fixes the trade deficit problem, economists are concerned that economic recovery might just take longer, reports the Monitor article. To others, the trade deficit is a critical problem that have to be addressed. Peter Morici, University of Maryland economist, explained that unemployment is about 10 percent within the U.S. when China accounts for almost all of the trade deficit with the oil and consumer goods bought from them.
Additional reading
Washington Post
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