Trade deficit down 1.2% as exports rise to record high

WASHINGTON -- The United States' trade deficit narrowed in May as exports — including industrial supplies and consumer goods — climbed to all-time highs.

The latest snapshot of trade activity, reported by the Commerce Department on Friday, showed that the nation's trade gap decreased to $59.8 billion. That was down 1.2% from April's trade deficit and was the best showing since March.

Exports of U.S.-made goods and services totaled an all-time high of $157.6 billion in May. That marked a 0.9% increase from April. The declining value of the U.S. dollar, relative to other currencies, especially the euro, is helping to make U.S. exports cheaper and thus more attractive to foreign buyers. Growth in exports has been one of the few bright spots for the U.S. economy, which has been pounded by housing, credit and financial crises.

Imports of goods and services grew to a record of $217.3 billion in May, a 0.3% increase from the prior month.

The trade picture turned out better than many economists were anticipating. They were forecasting the trade gap to widen to $62.2 billion in May. The improvement should help give a boost to overall economic growth during the April-to-June quarter.

Still, high energy prices are a strain on U.S. companies and on the economy as a whole.

The average price of imported crude oil soared to a record of $106.28 a barrel in May. That pushed the country's imported crude-oil bill to an all-time high of $31.2 billion. The quantity of imported crude oil actually dipped in May from April.

The trade deficit with oil-producing nations, including Saudi Arabia, Indonesia, Nigeria and Venezuela, rose to a record of $17.9 billion in May.

The United States' has struggled to trim its trade deficits, a source of tension between Democrats and Republicans.

The Bush administration says free-trade policies that make it easier for U.S. companies to do business in other countries are the best way to deal with the country's trade deficits.

Democrats, however, blame the president's trade policies for the trade gap and loss of millions of U.S. factory jobs over the years as U.S. companies moved production to low-wage places such as China.

On the campaign trail, GOP presidential contender John McCain supports free trade, although he has acknowledged that it is not a positive for all people. He has promised to retrain workers who lose jobs to overseas plants.

Rival Democratic candidate, Barack Obama, has said he would revisit major trade pacts such as the North America Free Trade Agreement. He said he believes in free trade but that there should be protections built in for workers.

The United States' politically sensitive trade deficit with China widened to $21 billion in May, from $20 billion in April.

Trade tensions with China over the last few years have intensified on a number of fronts. Critics contend that Beijing's currency is still undervalued, making Chinese-made goods less expensive to buyers in the United States. The administration has been prodding China to do more to let its currency rise in value. Meanwhile, recalls of defective Chinese-made goods— from toys to toothpaste — have raised questions about safety.

Elsewhere in the report, exports to the European Union totaled a record $24.2 billion in May, helped by the weakened value of the U.S. dollar.

With Japan, U.S. exports to the country totaled $6.2 billion in May, the second-highest on record. Exports to Canada came to a record $24.5 billion in May.