U.S. October trade deficit drops to $32.9 billion

WASHINGTON (AP) - December 10, 2009 The U.S. trade deficit unexpectedly narrowed in October as exports surged to the highest level in nearly a year. Growing exports, boosted by a weaker dollar, are expected to boost demand for American manufactured goods in coming months and provide important strength to the overall economic recovery.

The Commerce Department said Thursday the trade deficit fell to $32.9 billion in October, 7.6 percent below a revised September deficit of $35.7 billion. Economists had expected the deficit to increase to $36.8 billion.

The improvement reflected a 2.5 percent jump in exports, led by strong gains in sales of American farm products, autos, aircraft and industrial machinery. Imports rose a smaller 0.4 percent, a gain that was held back by a big drop in oil imports.

The politically sensitive deficit with China rose 2.5 percent to $22.7 billion, the highest level in nearly a year, even though U.S. exports to China hit an all-time high.

In a trip to China last month, President Barack Obama lobbied Chinese leaders to do more to ease trade tensions between the two nations by allowing the Chinese currency to rise in value against the dollar. American manufacturers contend the Chinese are manipulating their currency to gain unfair trade advantages. A weak yuan makes American goods more expensive in China and Chinese goods cheaper for American consumers.

Through the first 10 months of this year, the U.S. trade deficit is running at an annual rate of $364.8 billion, just half of the $695.9 billion deficit for all of 2008. The lower trade deficit reflected the impact of America's deep recession, which cut consumer demand for domestic and foreign goods.

As the U.S. economy pulls out of the downturn, the U.S. trade deficit is projected to rise in 2010. However, American manufacturers will be helped by rising demand for their products in overseas markets, gains that will come from an improving global economy and the falling value of the dollar against many major foreign currencies, a development that will make American products more competitive in overseas markets.

For October, the 2.5 percent rise in exports pushed them to $136.8 billion, the highest they have been since November 2008. It marked the sixth straight monthly gain in exports, reflecting a gradual recovery in overseas economies and a decline in the value of the dollar since it hit a peak for this year in March.

Imports edged up a smaller 0.4 percent to $169.8 billion. The gain reflected increases in shipments of foreign cars, computers and consumers goods including clothing, televisions and household appliances.

The foreign oil bill fell by 10.4 percent to $22.8 billion as average daily shipments of crude oil fell to 8.34 million barrels, the lowest point since January 2000. The average price per barrel fell to $67.39, down from $68.17 in September, still well above the recent low of $39.81 in January of this year.

Further gains in exports should provide aid to manufacturers, who have struggled during the nation's deep recession. Heavy equipment maker Caterpillar Inc. has predicted that its sales will rise next year, reflecting in part greater demand in China and other Asian markets.

The U.S. economy grew at an annual rate of 2.8 percent in the July-September period, the first increase in the gross domestic product after a record four quarterly declines. Analysts believe that strength in exports will support growth in coming quarters although those gains will be offset somewhat by higher imports.

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