WASHINGTON — The US trade deficit shrank unexpectedly in May, helping to shore up the weak economy, even though average prices for imported oil surged during the month to a record, a Department of Commerce report showed on Friday.

The trade deficit narrowed to $59.8 billion, from $60.5 billion in April, as both exports and imports rose to record highs.

Wall Street analysts had expected skyrocketing oil prices, which hit a record $106.28 per barrel, to widen the deficit to $62.5 billion in May. But as prices surged, the volume of oil imports plunged 10.5 percent to their lowest level since September 2002.

The slight drop in the deficit was a "pleasant surprise" that shows exports are a source of strength in an otherwise weak US economy, said Ken Mayland, president of Clearview Economics in Pepper Pike, Ohio.

The inflation-adjusted trade deficit "fell more than $3 billion in May, which is a huge amount. What that means is the foreign trade number will make a substantial contribution to the second-quarter" economic growth," Mayland said.

Ian Shepherdson, chief US economist at High Frequency Economics, said he expects trade to boost second-quarter economic growth to more than three percent.

The strength in the trade sector, which is often blamed for US job losses, shows how the mortgage market crisis has turned the US economy "on its head," said Joel Naroff, president and chief economist of Naroff Economic Advisers.

"Housing is now the 'American Nightmare' while trade is our salvation," Naroff said.

Other data showed US consumer confidence rose unexpectedly in early July from a 28-year low with the help of retail discounts. But the Reuters/University of Michigan Surveys of Consumers also showed a vast majority think the country is in deep recession.

US exports, helped by the weak dollar, rose 0.9 percent in May to a record $157.5 billion, including individual records for exports to Canada, the European Union and South and Central America, the department said.

Record-high exports of industrial supplies and materials—including a record $5.7 billion worth of oil—led the rise, with a smaller increase for auto and auto parts. Consumer goods exports rose slightly to a record.

US imports rose 0.3 percent to a record $217.3 billion. Overall imports of non-petroleum goods set a record, as did three smaller categories: food, feeds and beverages, capital goods and consumer goods.

Crude oil imports were a record $31.2 billion, as prices rose $9.47 per barrel in May, the biggest one-month jump ever. But crude oil import volume fell to 294 million barrels in May, from 303 million in April.

"Even allowing for weaker demand for gasoline in the US, which would tend to reduce the need for imported oil, import volumes were exceptionally low in May. In coming months, oil import volumes are unlikely to remain so low, and higher oil prices will translate into a larger trade deficit," said Nigel Gault, chief US economist with Global Insight.

A separate Department of Labor report on Friday showed petroleum prices rose 7.4 percent in June for a gain of 78.6 percent for the year. That was the largest annual increase since February 2003, the labor department said.

The oil price surge pushed overall import prices 2.6 percent higher in June, the report showed, adding more inflation worries to a weak economy.

US Commerce Secretary Carlos Gutierrez said the galloping oil prices "tainted" an otherwise great trade report.

"We're buying less petroleum, but the value is up over 64 percent year to date. We need to be exploring and producing more of our oil ... That's job number one," Gutierrez said.

He also urged Congress to give exports a further boost by approving free trade pacts with Colombia, South Korea and Panama that have been stalled since last year.

US imports from Saudi Arabia and other members of the Organization of Petroleum Exporting Countries were a record $23 billion in May, pushing the US trade deficit with those countries to a record $17.9 billion.

The closely watched trade deficit with China widened 4.0 percent in May to $21.0 billion.

However, for the first five months of 2008, the gap totaled $96.0 billion, virtually unchanged from the same period last year.