U.S. Trade Deficit Narrows on Drop in Fuel Imports

By Shobhana Chandra

Oct. 10 (Bloomberg) -- The U.S. trade deficit narrowed in August as the retreat in oil prices cut the import bill.

The gap shrank 3.5 percent to $59.1 billion, close to economists' forecasts, a Commerce Department report today in Washington showed. Exports fell to the second-highest level on record. Sliding energy costs also sent the cost of imported goods down the most since 2003 last month, the Labor Department said.

In addition to crude oil, imports of automobiles, computers and televisions also dropped as the deepening financial crisis caused American consumers and businesses to retrench. Federal Reserve policy makers anticipate that with turmoil spreading through the global economy U.S. exports may also wane.

``I expect trade to continue being a positive for the U.S. economy, just a much smaller positive in coming months,'' said Michael Moran, chief economist at Daiwa Securities America Inc. in New York.

Exports have climbed to record levels this year in part because of a slump in the dollar since 2002 that has made American products more competitive in world markets. The currency has advanced against the euro in recent weeks as Europe's economic outlook deteriorated, while the dollar's decline against the yen has accelerated.

The U.S. currency rose 0.3 percent today to $1.3560 per euro at 8:43 a.m. in New York and was down 0.8 percent versus the yen at 99.02 yen per dollar.

Economists' Forecasts

The trade gap was projected to narrow to $59 billion in August, according to the median forecast in a Bloomberg News survey of 71 economists. The deficit for July was revised to $61.3 billion from an initially reported $62.2 billion.

Imports decreased 2.4 percent to $223.9 billion, mainly reflecting the decrease in oil. The average price of a barrel of crude fell to $119.99 in August from a record $124.66 the prior month. The number of barrels imported in August also fell.

The oil deficit is likely to keep shrinking. A barrel of crude oil on the New York Mercantile Exchange dropped to a one- year low yesterday and continued to fall today.

Exports declined 2 percent, the biggest drop in four years, to $164.7 billion. Record demand for American goods from Central and South America and from the Organization of Petroleum Exporting Countries helped offset declining sales to Europe.

GDP Impact

After eliminating the influence of prices, which are the numbers used to calculate gross domestic product, the trade deficit shrank to $39 billion, the lowest level since December 2001. The decrease may prompt some economists to boost third- quarter growth estimates. The median forecast of economists surveyed this month projected the economy contracted at a 0.2 percent annual pace from July through September.

The politically-sensitive trade gap with China increased to $25.3 billion, the highest in almost a year as imports rose more than exports.

Trade has been one of the few bright spots in the U.S. economy over the past year. A narrower gap in the second quarter, reflecting record exports and falling imports, contributed the most to growth in almost three decades. Without the help, the economy would have contracted.

The pillars supporting export gains -- growing economies overseas and a drop in the value of the dollar -- are starting to crumble. The euro-zone economy contracted in the second quarter for the first time since the introduction of the currency, and Japan also shrank.

IMF Forecasts

Advanced economies next year will grow 0.5 percent, the slowest pace since 1982, the International Monetary Fund forecast this week. Its global growth estimate for 2009 was scaled back to 3 percent, a level the fund has called the dividing line between a global recession and expansion.

Since reaching a 12-year low in April, the dollar has rallied 12 percent against a basket of currencies from the U.S.'s biggest trading partners. A lower dollar made American-made goods more competitive in global markets. Still, it may take several years for the recent appreciation to affect exports.

The financial crisis, by choking off access to cash, is having a more immediate influence. Textron Inc.'s Cessna business-jet unit saw a slowdown in airplane orders in recent weeks, its President Jack Pelton said.

``It's really hit us in the last two to three weeks,'' Pelton said at a trade show in Orlando on Oct. 5. At the same time, the world's biggest business-jet maker has seen strong demand from markets including Brazil, Russia and the Middle East, he said.

To contact the reporters on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net