Deeper Trade Deficit Adds To Fed's Challenge

At least in theory, lower trade deficits raise non-inflationary growth potential of the U.S. economy.

Of course, the reverse also is true, and that's what worries Peter Morici about the trade numbers that the U.S. Commerce Department reported on June 9.

Commerce said the U.S. international goods and services trade deficit in April was $63.4 billion in April, up $1.5 billion from the revised March deficit of $61.9 billion. "High and rising trade deficits make [Chairman] Ben Bernanke's job at the Fed more difficult by reducing productivity and the growth potential of the U.S. economy," says Morici, a professor at the University of Maryland's Smith School of Business in College Park.

April's figure brings the U.S. trade deficit for the first four months of 2006 to $254.2 billion, some $29.1 billion more than the $225.1 billion deficit for the first four months of 2005.

Prices for goods the U.S. imports as well as for those it exports also are on the rise. In May, the U.S. Labor Department's import price index increased 1.6%, the second largest monthly gain this year, as prices for petroleum and non-petroleum products rose. The department's export price index advanced seven-tenths of a percent in May, matching January's figure for the biggest month increase of the year.

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