By IAN TALLEY And JEFF BATER
The U.S. trade deficit ballooned in August, inflated by a record-setting deficit with its largest trading partner, China, the U.S. Commerce Department said Thursday.
U.S. imports surged 2.1% to $200.22 billion from $196.12 billion in July while exports rose marginally to $153.87 billion from $153.53 billion in July.
Meanwhile, separate reports showed initial claims for jobless benefits increased in the latest week, while wholesale inflation accelerated in September on the back of a jump in volatile food prices.
The trade news comes as international tensions escalate over Beijing’s policy of an undervalued yuan and political pressure is building for Washington to leverage action at the upcoming Group of 20 nations meetings.
The total U.S. deficit in international trade of goods and services rose by 8.8% to $46.35 billion from a downwardly revised $42.58 billion the month before, Commerce said. The July trade gap was originally reported as $42.78 billion.
Economists surveyed by Dow Jones Newswires had predicted a $43.4 billion trade gap.
The U.S. trade deficit with China grew to $28.04 billion from $25.92 billion in July. Imports from China grew 6.1% to a record $35.29 billion. Meanwhile, exports fell $92 million to $7.25 billion.
U.S. manufacturers have pressed Washington to do something about China’s undervalued currency, an imbalance that makes Chinese products cheaper and more competitive in the U.S. and American products more expensive in China. The House of Representatives late last month passed legislation that would slap punitive tariffs on countries such as China that have undervalued currencies and the issue is expected to be at the center of attention at the G-20 with fears of a global forex war looming.
The deficit with Japan, which has implemented what economists call competitive devaluation of its currencies, hit a near two-year high.
U.S. trade with other nations acted as a big drag on the economy in the second quarter of the year, as imports outpaced exports. Trade subtracted 3.5 percentage points from growth April through June, when U.S. gross domestic product increased by 1.7%.
Thursday’s report showed that the real, or inflation-adjusted, deficit, which economists use to measure the impact of trade on GDP, increased to $51.17 billion in August from $47.31 billion the month before.
The U.S. bill for crude oil imports in August also increased slightly to $22.55 billion from $22.47 billion the month before. Prices rose to $73.47 a barrel but consumption slipped to 306.91 million barrels.
The U.S. paid $29.18 billion for all types of energy-related imports, up from $28.43 billion in July.
For U.S. exports, gains of $1.2 billion in foods, feeds and beverages were largely offset by a decline in capital goods, particularly civilian aircraft, by $1.46 billion. Sales of industrial supplies increased $584 million.
Imports rose across the board. Purchases of consumer goods grew $1.44 billion in August, capital goods rose $900 million and imports of autos and related parts increased by $683 million.
The U.S. trade gap with several other major trading partners surged. Imports with Mexico hit the highest it has ever seen at $20.3 billion, pushing the deficit to $6.04 billion.
The deficit with Japan, at $5.8 billion, was the highest since October 2008. The trade gap with Canada grew to $2.19 billion from $1.43 billion in July.
Meanwhile, the trade shortfall with the euro-area, which continues to suffer from anemic growth and a sovereign debt crisis, fell 20.8% to $6.46 billion from $8.16 billion.
Jobless Claims Increase
The number of U.S. workers filing new claims for jobless benefits increased last week by more than expected as the country continues to wrestle with high unemployment.
Initial unemployment claims rose by 13,000 to 462,000 in the week ended Oct. 9, the Labor Department said in its weekly report Thursday. New claims for the previous week, ended Oct. 2, were revised upward to 449,000 from 445,000.
Economists polled by Dow Jones Newswires had predicted new claims would rise by only 1,000.
The four-week moving average, which aims to smooth volatility in the data, increased by 2,250 to 459,000 from the prior week’s revised average of 456,750.
This latest rise in claims comes just one week after the Labor Department released a report showing that U.S. employers continued to shed jobs in September. Even though private employers added 64,000 jobs to the payrolls, it still wasn’t enough to offset public sector job losses and overall nonfarm payrolls fell by 95,000.
The tough labor market is likely to be a key issue in the upcoming midterm elections Nov. 2 as Democrats fight to maintain their majority in Congress. That is also the first day of the Federal Reserve’s two-day Federal Open Market Committee meeting. At that gathering, Fed officials are likely to take additional action to help spur more economic growth.
Chief Treasury Department Economist Alan Krueger expressed some optimism about labor market conditions to reporters last week, saying the private sector is continuing to heal and jobless claim trends suggest the market is on the mend.
“Data on initial claims for unemployment insurance at the end of September and early October indicate that the moderate improvement in labor markets is continuing,” he said.
In other news in Thursday’s claims report, the number of continuing claims–those drawn by workers for more than one week in the week ended Oct. 2.–fell by 112,000 to 4,399,000 from the preceding week’s revised level of 4,511,000. That’s the lowest level in almost two years. Continuing claims are reported with a one-week lag.
The unemployment rate for workers with unemployment insurance for the week ended Oct. 2 was 3.5%, a 0.1 percentage point decrease from the prior week’s revised rate of 3.6%.
The report’s state-by-state breakdown of new claims for the week ended Oct. 2 shows that the largest increase in claims took place in Pennsylvania, which saw a rise of 2,869 claims due to layoffs in the rubber and plastics, food, construction, and service industries.
California had the largest decrease in claims with a fall of 6,131 due to fewer layoffs in the trade and service industries.
A Labor Department economist said Thursday that claims historically tend to rise in the beginning of each quarter. Due to the Columbus Day holiday, five states and regions were estimated in Thursday’s report. Virginia provided its own estimate, and the Labor Department provided estimates for claims filed in Washington, D.C., Indiana, Texas and Puerto Rico.
Wholesale Prices Jump
U.S. producer prices rose for the third month in a row in September on the back of higher food prices, a move that could help ease the Federal Reserve’s concerns about inflation moving too low.
The index of producer prices, which measures how much manufacturers and wholesalers pay for goods and materials, rose a seasonally adjusted 0.4% for finished goods in September from August, the Labor Department said Thursday. That followed a 0.4% rise in August and a 0.2% increase in July.
Still, the government report showed that underlying inflation pressures remained low. Stripping out more-volatile food and energy prices, wholesale prices increased just 0.1% last month, after a rising the same amount in August.
The increase in producer prices was slightly higher than expected. Economists polled by Dow Jones Newswires were expecting a 0.1% increase in both the overall and core index of producer prices.
For the 12 months ended in September, the producer price index rose by 4.0%, accelerating from a 3.1% annual increase in August. The core index, meantime, increased by 1.6% year-over-year.
Federal Reserve officials considered various ways to prop up the U.S. economy at their last meeting Sept. 21. One idea: get Americans to spend more now by making them expect inflation will rise in the future.
Inflation has for several months been running below the Fed’s informal target of around 2.0% year-over year. Some officials worry the U.S. could experience a debilitating bout of falling prices and wages like Japan did unless action is taken to charge up the economy. Investors expect the Fed will announce a new bond-buying program at its next meeting Nov. 2-3 in an effort to spur growth by keeping borrowing rates low.
Thursday’s report showed that food prices rose by 1.2% in September after falling by 0.3% in August. The September increase was led by a 5.2% rise in meat prices. Higher prices for fresh and dry vegetables also contributed to the increase.
Energy prices rose 0.5% in September from August, the second consecutive increase. Liquefied petroleum gas moved up 6.1% and residential electric power prices also rose.
The producer price report also showed that intermediate goods prices rose by 0.5% last month, following a 0.3% increase in August.
Meanwhile, prices of raw materials, known as crude goods, fell by 0.5%in September after a 2.3% increase in August. The decline was led by an 8.8% plunge in the index for crude energy materials.
Economic reports out Friday could provide further clues on the Fed’s next moves by giving investors an idea of how the economy is faring. Retail sales and consumer confidence reports will be scrutinized for signs of consumer spending ahead of a key holiday season. The consumer price index report is expected to show inflation remained low last month.
—Luca Di Leo and Sarah N. Lynch contributed to this article.