Lower U.S. Trade Deficit May Be Temporary

Running counter to economists' expectations, the U.S. trade deficit with the rest of the world in May decreased to $55.349 billion, $1.559 billion less than April's revised deficit of $56.899 billion and nearly $1.7 billion less than a forecast deficit of $57 billion. U.S. exports in May totaled $106.891 billion, the highest monthly figure of 2005, but they were more than offset by imports totaling $162.241 billion, their second highest number for the year, according to data released by the U.S. Commerce Department on July 13.

"The improvement in May was almost entirely caused by lower oil prices than in April," observes Peter Morici, a professor at the University of Maryland's Smith School of Business in College Park. "Going forward, higher oil prices and a stronger dollar are likely to push the trade deficit up," he says.

Indeed, prices for U.S. imports increased a full percentage point in June, with higher petroleum prices surging past the second consecutive monthly decline in non-petroleum prices, the U.S. Labor Department reported on July 13. Prices of U.S. petroleum imports rose 7.6% in June; prices for non-petroleum imports fell four-tenths of a percent.

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