Trade gap narrows in July

The nation's trade deficit narrowed in July as exports rebounded from an unusually weak June and the price of oil imports slipped, adding to evidence that the US economy is moving out of its recent soft patch.

The trade deficit, created when imports exceed exports, narrowed to $50.1 billion from June's record gap of $55 billion, an 8.9 percent decline, the Commerce Department reported yesterday. Exports, which fell sharply in June, grew nearly $3 billion, or 3 percent, to $95.9 billion in July. Meanwhile, imports slipped about $2 billion, or 1.4 percent, to $146 billion, with the drop in petroleum prices accounting for more than half of the decline.

Massachusetts exports, meanwhile, remain strong. (Imports are not tracked at the state level.) The state's exports in July grew 12 percent compared to July 2003, keeping the state on track to break the export record of $20.5 billion set in 2000. Through the first seven months of the year, Massachusetts companies have sold nearly $13 billion in goods in foreign markets, a 22 percent increase from the same period a year ago, and nearly double the national growth rate.

Regional economists say surging exports are helping to boost the state's manufacturers, which have added 5,000 jobs since September.

''This is very much a world economy, and we're doing extremely well," said Andre Mayer, senior vice president for research at Associated Industries of Massachusetts. ''We're way ahead of last year, and way ahead of the US."

The trade gap expanded sharply in June, and that helped pull economic growth below a 3 percent annual rate in the second quarter, economists said. With the gap between exports and imports shrinking in July, economists said they expect the economy to grow at a 3.5 to 4 percent rate in the current quarter.

That, in turn, means the Federal Reserve is all but certain to raise its key short-term interest rate for the third time in as many months when policy makers meet Sept. 21. With the economy growing, the Fed has to boost rates -- which remain at levels that were used to combat recessions -- or risk unleashing runaway inflation, economists said.

The Fed rate, to which virtually every other interest rate is tied, is 1.5 percent, near historic lows.

Meanwhile, inflation, which flared earlier this year, appears to be cooling.

The Labor Department reported yesterday that its producer price index, which measures inflation at the wholesale level, dipped in August as gasoline, food, and vehicle prices fell.

Economists said yesterday that a shrinking trade deficit was good news, but that the gap remains both big and worrisome. A stronger US economy is contributing to it, boosting demand for imports, while the weaker economies of major trading partners, such as Europe and Japan, curb demand for US exports.

In addition, some nations, particularly China, keep the values of their currencies artificially low compared to the dollar. That makes Chinese products cheaper here and US exports more expensive in China.

Imports from China soared to a record $17.6 billion in July, the Commerce Department said, while the trade deficit with China also hit a new monthly high of $14.9 billion.

Robert Gavin can be reached at rgavin@globe.com.