U.S. businesses and consumers spent more in June on imported machinery, clothing, jewelry and other goods and services. Everybody paid more for oil.
Meanwhile, U.S. businesses sold far less corn, chemicals, computers and other items overseas.
By the end of June, imports exceeded exports by $55.8 billion, another record U.S. trade deficit, the Commerce Department reported yesterday. The size of the gap forced many economists to trash their forecasts and pencil in lower estimates of the economy's strength in coming months.
The trade gap, 19 percent wider than the one in May, reflected the recent sharp economic slow-down in the United States and abroad, analysts said.
More worrisome, several economists said, is the possibility that the swelling trade deficit will eventually cause a steep drop in the dollar and a rapid rise in interest rates, lowering Americans' living standards.
"The U.S. as a nation is just living way beyond its means," said Nigel Gault, U.S. economist for Global Insight, an economic research firm, noting that household debt has soared in recent years and that the federal budget deficit is ballooning to a record size. "There is a worry that at some point, U.S. spending growth will have to slow sharply to get this under control."
The size of the trade gap surprised many analysts because it showed the U.S. economy had slowed more significantly than thought in the spring.
Several analysts said they also expect weaker U.S. economic growth in coming months as trade provides an additional drag on a recovery that may be faltering under the weight of high energy prices, stalling job creation and tepid consumer spending.
"Unless there is significant improvement in coming months, the deficit's trajectory poses serious questions about the growth outlook in the second half," Joseph Abate, of Lehman Brothers Global Economics, wrote in a note to clients, calling the trade figures "shockingly dismal."
Such concerns provided new fuel for election year debate over the Bush administration's handling of the economy, a top voter concern in the last months of the campaign.
The trade report showed that "this administration hasn't come close to doing enough to enforce trade agreements and fight for jobs here at home," said Phil Singer, spokesman for the campaign of Democratic presidential candidate Sen. John F. Kerry (Mass.).
The Bush campaign countered that the president has vigorously enforced trade agreements while lowering taxes and reducing regulations to make U.S. businesses more competitive globally.
"The president believes the key to improving our economic growth is aggressive trade policies that promote U.S. goods and services overseas," said Terry Holt, a Bush campaign spokesman.
Stocks were little changed yesterday from Thursday's close, when the major indexes touched new lows for the year. Oil prices hit a new high yesterday, with benchmark U.S. crude scheduled for September delivery rising to $46.58 per barrel on the New York Mercantile Exchange.
Beyond the short-term implications, some economists said the bigger worry is the long-term risk to the economy posed by ever-growing trade and budget deficits. The deficits reflect that Americans consume more than they produce and borrow the difference from abroad. At some point, economists think, foreigners will not want to continue investing ever-greater amounts of money in U.S. stocks, bonds and other assets.
The broadest measure of the trade deficit, which includes investment flows, stood at more than $500 billion last year, equivalent to about 5 percent of U.S. gross domestic product.
The Federal Reserve research staff, in a presentation to top central bank policymakers in June, said a trade gap of that size "could not be sustained indefinitely," according to minutes of the meeting released Thursday.
Fed Chairman Alan Greenspan has said many times this year that he thinks global markets are probably large and flexible enough for the deficit to be reduced relatively smoothly to a more sustainable size.
The Fed staff agreed in June that such an adjustment "might well proceed in a relatively benign fashion . . . but the possibility that the adjustment could involve more wrenching changes could not be ruled out," according to the meeting's minutes.
The "wrenching" version could occur if financial market psychology shifts, foreign investors decide to dump U.S. assets, the dollar plummets and U.S. interest rates soar.
The trade deficit's recent growth "is a portent of a highly probable crash of the dollar within the next couple of years," said C. Fred Bergsten, director of the Institute for International Economics. And, he added, the June numbers imply that will happen sooner rather than later.
The Fed staff, however, said in June -- before the June trade figures were known -- that "the adjustment of such imbalances was not necessarily imminent."
Some economists are more sanguine. James Glassman, senior economist at J. P. Morgan Securities, Inc., said the June figure shows that "our basic problem is global demand is too weak." But he said that over time, free trade will spur more economic growth overseas, benefiting the U.S. and global economies.
Part of the concern arises from the trend over recent months, Bergsten said. The trade gap has hit a new record in seven of the last eight months.
With economic growth slowing in China, and disappointing in Japan and Europe, some analysts said, it is hard to see how export growth can rebound in coming months.
"Record oil prices and slower growth in the rest of the world argue against a significant improvement in the trade deficit any time soon," Jay Bryson, an economist with Wachovia Economics Group, wrote in an analysis for clients.
U.S. exports fell 4.3 percent in June, while imports rose 3.3. percent, the Commerce Department reported.