U.S. Economy: Trade Gap Unexpectedly Shrank in August

Oct. 9 (Bloomberg) -- The U.S. trade deficit unexpectedly narrowed in August as exports climbed to the highest level of the year and oil imports plunged.

The gap fell 3.6 percent to $30.7 billion from a revised $31.9 billion in July, the Commerce Department said today in Washington. The 0.2 percent increase in demand for American- made goods abroad would have been larger excluding a drop in aircraft shipments, which tend to be volatile.

More than $2 trillion in government stimulus programs are reviving demand from Asia to Europe, ensuring American factories benefit from growing sales overseas as the dollar weakens. Gains in production and the need to replenish depleted inventories mean imports will probably also grow in coming months, preventing the deficit from narrowing further.

“Exports continue to hold up pretty well, as a recovery is occurring in many parts of the world, especially in Asia,” said Jay Bryson, global economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “The weakness of the dollar will improve the competitiveness of our products,” he said, and “imports will reflect the stabilization in the U.S.”

The trade gap was projected to widen to $33 billion from an initially reported $32 billion in July, according to the median forecast in a Bloomberg News survey of 76 economists. Deficit projections ranged from $29 billion to $35.3 billion.

Bernanke Comments

The dollar held earlier gains following the report, propelled by comments from Federal Reserve Chairman Ben S. Bernanke yesterday that the central bank is ready to raise interest rates once the economy improves.

The dollar rose the most against the Japanese yen in two months, bringing it to 89.64 yen at 12:01 p.m. in New York. Stocks rose, with the Standard & Poor’s 500 Index up 0.2 percent at 1,067.55 in New York. The dollar yesterday fell toward its lowest level since August 2008 against the currencies of six major U.S. trading partners.

A weaker dollar is likely to stimulate foreign demand in coming months as U.S.-made goods become cheaper for overseas buyers. Manufacturing expanded over the last two months, the first back-to-back gain since before the recession began in December 2007, according to the Institute for Supply Management. The Tempe, Arizona-based group’s export gauge in August reached the highest level in a year.

Exports increased to $128.2 billion, led by a $496 million gain in sales of cars and parts, today’s report showed. Exports to Canada reached the highest level since November, in part reflecting the cross-border trade in autos.

GDP Calculation

Imports fell 0.6 percent to $158.9 billion in August after jumping the prior month by the most in 16 years. Purchases of crude oil from overseas dropped as the U.S. imported 8.66 million barrels a day on average, down from 9.56 million in July. The average price per barrel rose to $64.75 from $62.48.

After eliminating the influence of prices, which are the numbers used to calculate gross domestic product, the trade deficit narrowed to $37.7 billion from $38.8 billion. Excluding petroleum, the trade deficit widened to $14.2 billion from $14 billion the prior month.

The trade gap with China was little changed in August as both exports and imports climbed. Group of Seven officials, in a statement this month, welcomed China’s “continued commitment” to a more flexible currency, which they said would promote balanced international expansion.

‘Good Sign’

“It’s very much in China’s interests, as its economy grows, to be less dependent on exports as the principal engine of economic growth,” White House economic adviser Lawrence Summers said in an interview yesterday.

Treasury Secretary Timothy Geithner, in a press conference during the Group of 20 summit in Pittsburgh last month, praised steps China already has taken to strengthen its economy.

“If you look at the composition of growth so far, their current-account surplus, their trade surplus is coming down, and domestic demand is getting stronger, and that’s a good sign of the shift,” Geithner said.


The U.S. economy likely saw a return to growth in the third quarter after contracting in the prior six months, according to economists surveyed by Bloomberg, as the Obama administration’s $787 billion stimulus package started to have some effect.

The euro area is stabilizing after governments injected billions in the 16-nation region’s economy through tax cuts and spending incentives. China is spending 4 trillion yuan ($590 billion) to stimulate the world’s third-largest economy.

Companies seeing a turnaround include Alcoa Inc., the largest U.S. aluminum producer. New York-based Alcoa reported an unexpected third-quarter profit, helped by improving metal prices, job cuts and lower raw-material costs. Chief Executive Officer Klaus Kleinfeld said the second half of the year is better in many industries and regions.

“We do clearly see growth, substantial growth, I might add, in China,” Kleinfeld said on an Oct. 7 conference call, adding that there also is “stabilization in North America.”

US trade gap narrowed in August

Official figures show that the US trade deficit narrowed surprisingly in August due to higher exports and lower imports.

The Commerce Department reported that the trade gap fell to $30.7 billion from a revised $31.9 billion in July. Most analysts had expected a $33 billion deficit.

In percentage terms, the dip was the largest recorded since May. August exports rose slightly to $128.2 billion while imports fell to $158.9 billion.

The trade deficit with Canada, the largest US trading partner, narrowed by 27.9% to $1.5 billion in August from July while the deficit with Mexico, the second largest export destination and third largest import destination, widened by 34.6% to $4 billion.

The politically sensitive trade deficit with China narrowed by less than 1% to $20.2 billion. The US dollar has weakened against the currencies of most of its major trading partners, making its exports more competitive.