By Jason Lange
WASHINGTON (Reuters) - The trade deficit narrowed slightly in May as lower oil prices and a rise in exports, including those bound for Europe and China, eased the pain of a slowdown in the broader economy.
The gap shrank 3.8 percent to $48.7 billion, the U.S. Commerce Department said on Wednesday.
Exports, which have been a key support for the economy since the 2007-2009 recession, climbed 0.2 percent, rising across categories from capital goods and industrial supplies to consumer goods. Imports fell 0.7 percent, dragged down by the drop in oil prices.
Economists cautioned, however, the strength in exports was likely to wane given the weight Europe's debt crisis was placing on the global economy.
"While the positive momentum in export activity provides some encouragement on the tone of overall global economic activity, it is unlikely to be sustained," said Millan Mulraine, an economic strategist at TD Securities in New York.
American companies slammed the brakes on hiring in the second quarter, a warning sign the recovery is faltering.
Many economists think already anemic economic growth slowed further during the period, with companies hiring less due to fears over Europe's crisis and U.S. government plans for severe belt tightening in 2013.
Earlier this month, a private survey showed activity at U.S. factories declined in June, with new orders falling, including those for exports.
The overall reading for the trade deficit was in line with expectations, and didn't make a big impact on analysts' views of second-quarter growth.
"At least as of May the situation in Europe wasn't leading to some kind of collapse in trade," said David Resler, an economist at Nomura Securities in New York.
The data did not appear to affect trading on Wall Street. U.S. stocks fell modestly as investors awaited minutes of the Federal Reserve's last policy meeting, hoping for clues on the likelihood of further monetary stimulus.
A separate report from the Commerce Department showed wholesale inventories edged higher in May despite a big drop in stocks of oil.
U.S. exports to the 27-nation European Union rose 2.6 percent in May to $22.9 billion.
The EU collectively was the United States' second largest export market last year, and exports in the first five months of 2012 were 3 percent above the same period in 2011.
On Wednesday, Spanish Prime Minister Mariano Rajoy announced a swathe of new taxes and spending cuts, the latest round of austerity that will likely weigh on economic growth.
U.S. exports to China rose 5.2 percent in May. China has been one of the fastest growing markets for U.S. goods, and exports to that country were up 6 percent for the first five months of 2012 from the year-ago period.
Still, exports provide little more than a silver lining for America's darkening growth outlook. Consumer spending drives about two thirds of the economy, and recent weakness in everything from retail sales to hiring has led many economists to downgrade their growth forecasts.
Barclays on Wednesday slashed its forecast for second quarter growth to 1.5 percent, citing weak consumer spending, jobs growth and manufacturing. The economy expanded 1.9 percent in the first three months of the year.
The somber outlook extends to some U.S. corporations. Engine maker Cummins Inc <CMI.N> cut its full-year sales forecast on Tuesday, while analysts are advising investors to brace for bad news when the biggest names in the U.S. tech sector begin reporting quarterly earnings next week.
Imports from China have been increasing at an even faster pace than exports, and the U.S. trade deficit with China widened to $26 billion in May from $24.6 billion a month earlier.
A fall in the price of oil helped drive the overall reduction in U.S. imports. The average price of imported oil slipped to $107.91 per barrel.
Even though exports to Europe rose, the flow of imports grew even more, pushing the trade deficit with the European Union to $10.5 billion, the highest since July 2008.
(Additional reporting by Herb Lash in New York; Editing by Andrea Ricci)