Trade Defecit Widens in April

June 9, 2006 — -- For the first time in three months, the United States saw its trade deficit increase during April, according to a government report released today.

The country imported $63.4 billion more goods and services than it exported during the month. That's 2.5 percent above the March report and is smaller than the $65 billion most economists had been expecting. The record single-month gap was set in January of this year, when the country's foreign trade deficit stood at $66.2 billion.

U.S. companies shipped $115.7 billion in goods and services overseas during the month, down 0.2 percent from March. Imports from our trading partners increased 0.7 percent to $179.1 billion.

So what's driving this? Two major factors account for the increase in April's trade gap: high oil prices and cheap Chinese goods.

Oil prices during the month averaged $56.82, the second-highest level ever, which drove up the overall dollar value of the oil trade. Since the United States relies heavily on imported oil to fuel our cars, homes and companies any increase in oil prices widens the trade gap.

China, our third-largest trading partner after Canada and Mexico, accounted for a huge part of the monthly deficit. U.S. consumers snapped up $17 billion more in Chinese goods than they sent to the Asian economic powerhouse.

What's Does the Increase Mean Overall?

We're on track to set another record trade deficit for the year. With a third of the year already accounted for, import and export activities will likely saddle us with a $762 billion annual gap. That's a lot of American dollars heading overseas to pay for the products and services we buy.

More immediately, this report points to higher than expected inflation reports next week. Import prices can swing the producer price and consumer price indexes up or down (in this case, likely up). That would be bad for the stock market, as inflation worries have weighed on investor confidence, thanks to some tough talk from the Fed recently.