American exports to Germany and other stagnating European nations fell, while imports from China set a record high, combining to grow the U.S. trade deficit in July, according to information released today by the Commerce Department.
The U.S. shortfall came in at $42 billion in July, up slightly from $41.9 billion in June and below an expected deficit of $44 billion forecast. European demand weighed heavily as the Continent struggles to emerge from fiscal crisis. American exports to Europe declined nearly 12% in July, creating the largest American trade deficit with the EU since before the recession.
Numerous U.S. companies have suffered in the region recently, with major automakers such as Ford (NYSE: F ) and General Motors (NYSE: GM ) feeling the sting from the Continent's fiscal woes. Ford expects to lose more than $1 billion this year in the region, although it is pushing forward there with plans that include bringing the iconic Mustang to Europe. GM also predicts heavy losses in Europe and has undertaken a big shakeup with the removal in July of Karl-Friedrich Stracke, GM's Europe chief.
A 6.5% decline in oil imports due to relaxed prices helped slow the deficit's fall, economists say. Total U.S. exports fell only 1% to $183 billion. Meanwhile, the American deficit with China expanded by more than 7% to $29.4 billion, with imports from China climbing more than 5%.
It's not all good news for China, however. The country reported declining imports from the rest of the world in August. With Chinese manufacturing showing weakness already and the nation's economic growth at its weakest since 2009, many signs are beginning to point to a worsening slowdown in the world's second-largest economy.
All of this weighs on the U.S. recovery and the numbers could weigh on the Federal Reserve's decision later this week as speculation grows regarding a third round of asset-buying purchases.