Trade deficit drops as exports increase

WASHINGTON — The U.S. trade deficit has gone on a diet, helped by strong exports of farm products and manufactured goods and by Americans spending less as the economy limps along.

The deficit for June fell by 4.1 percent to $56.8 billion. That's the lowest level in three months and a surprise to economists who had expected an increase reflecting a big surge in oil prices during the month, the Commerce Department reported Tuesday.

While oil prices did rise to a record level, exports of everything from soybeans and corn to aircraft engines and heavy machinery surged by the largest amount in four years, offsetting the rising oil bill.

The better-than-expected June performance left analysts revising up their estimates for overall economic growth in the April-June quarter to as much as 3 percent. That would be more than a full percentage point higher than the 1.9 percent initial estimate for GDP growth.

Wall Street, however, was unimpressed by the June trade performance. Stocks took a tumble as gloomy news from JPMorgan Chase & Co. and other financial firms raised new anxieties about the continuing impact of a severe credit crisis on the economy. The Dow Jones industrial average fell 139.88 points to close at 139.88.

Over the past four quarters, trade has been the economy's standout performer. It has contributed four-fifths of what little growth there has been while the country has been battered by the worst housing

slump in more than two decades, a severe credit crisis, rising unemployment and soaring energy costs.

Without the boost from trade, economists believe the country would almost certainly be in a recession at the moment. Analysts worry about how long the export boom can last, however, given that two of America's biggest overseas markets, Europe and Japan, are flirting with recessions.

"The more severe their slowdown, the greater the likelihood that it will begin to cool the boom in exports," said Nigel Gault, an economist at Global Insight, a Lexington, Mass., forecasting firm.

But other analysts said that exports have built up so much momentum that the trade improvement should continue for the rest of the year given the significant decline in the value of the dollar. Even with its recent rebound the dollar is still down significantly against the euro.