U.S. Trade Gap Unexpectedly Shrinks as Exports Soar

Nov. 9 -- The U.S. trade deficit unexpectedly narrowed in September as the dollar's slump helped push exports to a record, giving the economy a lift as the housing recession deepened.

The gap shrank 0.6 percent to $56.5 billion, the smallest since May 2005, from a revised $56.8 billion in August, the Commerce Department said today in Washington. The report will probably prompt economists to boost estimates for growth in the third quarter.

Exports reached new highs for a seventh consecutive month as a weaker dollar and growing economies overseas bolstered demand for American products from cotton to semiconductors. Trade will continue to contribute to economic growth and help manufacturers weather a housing-related slump in demand.

Trade, ``instead of being the drag that it has been for the last 15 years, is finally becoming a net positive,'' said Brian Fabbri, chief economist at BNP Paribas in New York, who Predicted the gap would shrink to $57.3 billion. ``It will revise real GDP growth up.''

Economists had forecast the deficit would widen to $58.5 billion from a previously reported $57.6 billion in August, according to the median of 76 economists surveyed by Bloomberg News.

The government excludes the effect of prices when calculating trade's impact on economic growth. On that basis, the gap was little changed at $51.7 billion from a downwardly revised $51.6 in August.

Last quarter's 3.9 percent growth rate may be revised closer to 5 percent, economists said prior to the report.

Exports Climb

Exports rose 1.1 percent to $140.1 billion as almost all major categories, including foods, raw materials, automobiles and consumer goods registered gains.

The increase was restrained by a drop in deliveries of commercial aircraft, which probably reflected fewer shipments by Boeing Corp. The world's second-biggest plane maker delivered 23 aircraft to foreign buyers in September, down from 30 in August.

Imports increased 0.6 percent to $196.6 billion, the second highest on record. Americans bought more crude oil, automobiles and computers from companies overseas.

The price of imported petroleum rose to a record average $68.51 a barrel in September. Still, a decline in the amount of crude purchased kept the oil-import bill little changed.

The dollar was little changed against the euro after the report and remained weaker versus the yen. Stock-index futures stayed lower.

Appetite From Abroad

Foreign manufacturers are stepping up orders for U.S.-made equipment as they expand to meet growing consumer demand. Rockwell Automation Inc., the world's largest maker of factory controls, said fourth-quarter profit got a boost from overseas orders for equipment and software, the Milwaukee, Wisconsin- based company said Nov. 8.

``Certainly Asia performed better in the second half of the year and in particular China performed better,'' Chief Executive Officer Keith Nosbusch said in a conference call. ``We are very happy with the momentum we have coming out of the year in Asia.''

The government last week estimated exports jumped 23 percent at an annual pace in the third quarter, the most since the last three months of 1996. A shrinking trade gap accounted for 0.9 percent point of the growth rate last quarter.

A drop in the dollar, by making American goods cheaper to foreign buyers, has helped boost exports. The dollar weakened 8 percent against a basket of currencies from major trading partners since January 2006, according to Federal Reserve figures.

China, India

Faster growth overseas is also making up somewhat for slower demand at home. China expanded 11.5 percent in the third quarter from a year earlier. India grew 9.3 percent in the 12 months ended in June and Argentina, the second-biggest economy in South America after Brazil, expanded 8.7 percent.

In contrast, the U.S. economy, the world's largest, grew 2.6 percent in the year to September.

The trade deficit with China, widened 5.5 percent to $23.8 billion. Imports from China were the second biggest on record. So far this year, China has sent more goods to the U.S. than Canada, America's biggest trading partner.

Some U.S. policy makers and manufacturers say Chinese companies have an unfair trade advantage because China keeps the value of its currency, the yuan, artificially low to stimulate exports.

Bernanke Chastises China

China needs ``to increase the flexibility of the exchange rate'' to boost domestic demand and lessen its dependency on exports, Fed Chairman Bernanke told a congressional hearing yesterday in Washington.

The Institute for Supply Management's gauge of manufacturing exports rose in October and its import measure contracted, signaling the trade gap may continue to improve.

``The sharp fall in the U.S. dollar over the past year should fuel foreign orders and generate even stronger export volumes across many industries in coming months,'' Joe Carson, head of global economic research at AllianceBernstein in New York, said in a note to clients last week. Carson forecasts exports will add a full percentage point to growth in 2008.