updated 7/11/2008 12:35:08 PM ET 2008-07-11T16:35:08

The U.S. trade deficit narrowed in May as exports — including industrial supplies and consumer goods — climbed to all-time highs.

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The latest snapshot of trade activity, reported by the Commerce Department on Friday, showed that the nation’s trade gap, thanks largely to the declining dollar, decreased to $59.8 billion. That was down 1.2 percent from April’s trade deficit and was the best showing since March.

The improvement came even as imports — including crude oil — hit new record highs.

The trade deficit narrowed in May because exports grew faster than imports.

Exports of U.S.-made goods and services totaled an all-time high of $157.6 billion in May. That marked a 0.9 percent increase from April. The declining value of the U.S. dollar relative to other currencies, especially the euro, is helping to make U.S. exports cheaper and thus more attractive to foreign buyers. Growth in exports has been one of the few bright spots for the U.S. economy, which has been pounded by housing, credit and financial crises.

Imports of goods and services grew to a record of $217.3 billion in May, a 0.3 percent increase from the prior month.

On Wall Street, fears about Fannie Mae and Freddie Mac sent stocks tumbling. The Dow Jones industrials were down more than 200 points in afternoon trading.

The trade picture turned out better than many economists were anticipating. They were forecasting the trade gap to widen to $62.2 billion in May.

The stronger export figures should help boost overall economic growth during the April-to-June quarter, which is already shaping up to be better than the grim projections made at the start of the year, when many feared the economy might contract. Tax rebates also are energizing shoppers, which should help second-quarter activity.

“The narrowing trade deficit may be enough to keep second quarter growth in the black,” said Joel Naroff, president of Naroff Economic Advisors. The economy could grow from 1 percent to more than 2 percent in the second quarter, according to various projections.

Still, galloping energy prices are a strain.

The average price of imported crude oil soared to a record of $106.28 a barrel in May. That pushed the country’s imported crude-oil bill to an all-time high of $31.2 billion. The quantity of imported crude oil actually dipped in May from April.

Crude oil prices hit a new record of above $147 a barrel on Friday.

The trade deficit with oil-producing nations, including Saudi Arabia, Indonesia, Nigeria and Venezuela, rose to a record of $17.9 billion in May.

The United States has struggled to trim its trade deficits, a source of tension between Democrats and Republicans.

The Bush administration says free-trade policies that make it easier for U.S. companies to do business in other countries are the best way to deal with the country’s trade deficits.

Democrats, however, blame the president’s trade policies for the trade gap and loss of millions of U.S. factory jobs over the years as U.S. companies moved production to low-wage places such as China.

On the campaign trail, GOP presidential contender John McCain supports free trade, although he has acknowledged that it is not a positive for all people. He has promised to retrain workers who lose jobs to overseas plants.

Rival Democratic candidate Barack Obama has said he would revisit major trade pacts such as the North America Free Trade Agreement. He said he believes in free trade but that there should be protections built in for workers.

The United States’ politically sensitive trade deficit with China widened from $20 billion in April to $21 billion in May. Last year, the U.S. deficit with China was the most racked up with any single country.

Trade tensions with China over the last few years have intensified on a number of fronts. Critics contend Beijing’s currency is still undervalued, making Chinese-made goods less expensive for buyers in the United States. The administration has been prodding China to do more to let its currency rise in value. Meanwhile, recalls of defective Chinese-made goods— from toys to toothpaste — have raised questions about safety.

Elsewhere in the report, exports to the European Union totaled a record $24.2 billion in May, helped by the weakened value of the U.S. dollar.

With Japan, U.S. exports to the country totaled $6.2 billion in May, the second-highest on record. Exports to Canada came to a record $24.5 billion in May.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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