Monthly Trade Gap Is Biggest Since '08

The U.S. trade deficit hit its widest level in a year and a half, as increased imports from China more than offset growth in exports, an imbalance that is weighing on the tepid economic recovery.

The U.S. trade deficit, the difference between exports and imports, increased 4.8% to $42.3 billion in May, the Commerce Department said Tuesday. That was the widest since November 2008. April's trade gap was revised upward from earlier estimates.

U.S. exports grew 2.4% to a 20-month high of $152.3 billion. Imports grew faster, expanding 2.9% to $194.5 billion. The U.S. trade deficit with China expanded to $22.3 billion in May, the widest level since October and 15% larger than the previous month. Imports expanded by $3.1 billion, far outpacing a $162 million gain in exports.

Oil imports declined in the month, but that was more than offset by increased shipments of cars, computers and apparel. U.S. producers exported more cars, industrial machines and household goods.

The wider-than-anticipated trade deficit for May prompted several economists to downgrade their estimates for second-quarter economic growth. Economists at J.P. Morgan Chase & Co. lowered their forecast to 2.5% from 3.2%. St. Louis forecasters Macroeconomic Advisers lowered theirs by 0.8 percentage point to 2.4%.

Still, import growth is a sign of stronger demand from U.S. consumers and companies. If that demand holds up, it could translate to better economic growth down the line. "The demand is there, we just need to shift that demand to domestic producers," said Ben Herzon, senior economist at Macroeconomic Advisers.

Separately, the National Federation of Independent Business said its small business optimism index fell 3.2 points to a seasonally adjusted 89 in June. The index has gained ground since its recession low of 81 recorded in March 2009, but in the past several months has stalled around 90, still weak by historical standards.

Owners expect poorer business conditions and lackluster sales in the six months ahead. Amid the darker outlook, 9% said they had unfilled job openings, flat from May. A net 1% of respondents said they planned to hire over the next few months, also flat.

Another report Tuesday, from the Labor Department, showed there are scant jobs for the nation's 15 million unemployed. The Job Openings and Labor Turnover survey showed 4.67 unemployed people for each job opening in May, up slightly from a month earlier. The May reading was much better than May 2009, when there were 5.84 unemployed for each job, but was still indicative of a very weak job market.

With so many people vying for a small number of jobs, salaries remain tight for workers who are still employed. A Conference Board survey released Tuesday said U.S. companies expected to increase salaries moderately in 2011. The median U.S. salary budget increase is projected at 3% in 2011, the Conference Board said, from 2.5% the past two years.