By Josh Newell

WASHINGTON (MNI) – A steep decline in petroleum prices in May is
expected to have narrowed the U.S. trade deficit further, even as export
growth appears to have stagnated as well.

The U.S. trade deficit is estimated to have shrunk to $48.5 billion
according to a median estimate in a survey of economists by MNI. This
would be down from a $50.1 billion deficit in April.

Falling oil prices are the main reason behind the expected decline.
Petroleum import prices dropped 4.2% for the month, the largest decline
in two years according to the Bureau of Labor Statistics.

As a result, Michael Englund, chief economist at Action Economics,
expects a $4 billion decline in petroleum imports, telling MNI in a
phone interview, “I’m looking for a large decrease in oil prices and a
small drop in volume as well.”

Overall, Brent crude oil prices declined by 13.1% in May, according
to data from the U.S. Energy Information Administration, while WTI crude
prices stood at $86.52 per barrel at the end of May, down from $106.17 a
barrel on May 1. This was a sharp 18.5% drop since the beginning of the
month.

Outside of petroleum, Englund said he’s “looking for some bounce in
imports. Capital goods imports are a pretty steady contributor to import
growth, so since they plunged in April, largely under trend, we are
looking for a bounce this month.”

However, a potentially faltering domestic economy has some analysts
calling for a more general decline in imports.

BMO Capital Markets Senior Economist Sal Guatieri is forecasting a
massive drop in the deficit to around 43 billion.

He told MNI this is “due to one good factor, falling oil prices,
and one bad factor, weak consumer spending, both of which will reduce
imports.”

Ken Mayland, president of ClearView Economics agreed that U.S.
economic growth is showing some potential for slowing, though his
forecast of the deficit was not nearly as low.

He told MNI, “Domestic numbers on the U.S. economy also show some
movement to weakening as well which could affect imports. Not
necessarily slowing imports but very possibly weaker growth.”

“The more interesting thing is to see the extent to which the woes
in Europe are starting to affect the U.S. exports numbers,” said
Mayland.

He pointed out that even though the overall trade deficit may be
coming down, it is not necessarily a good thing for the economy, and he
expects “an ongoing trend of erosion of exports.”

The Institute for Supply Management’s reports on business showed a
large deceleration in export growth for May, with their manufacturing
report’s export index dropping 5.5 points to 53.5, and their
non-manufacturing export index declined 5 points to 53.

Englund believes exports fell in May as well, citing a global
slowdown in manufacturing growth as the primary reason.

“The boom we saw in the vehicle sector during the first quarter was
unsustainable. Regression back to trend, giving back some of the bounce
is to be expected,” Englund said.

The Department of Commerce will release the trade balance report
Wednesday at 8:30 a.m. ET.

–Joshua Newell is a reporter for Need to Know News in Washington

** MNI Washington Bureau: 202-371-2121 **

[TOPICS: M$U$$$,MAUDS$]