July 10 (Bloomberg) -- The U.S. trade deficit unexpectedly narrowed in May to the lowest level in almost a decade as exports jumped while imports of crude oil and auto parts declined.

The gap between imports and exports decreased 9.8 percent to $26 billion, the smallest deficit since November 1999, from a revised $28.8 billion in April that was lower than previously estimated, the Commerce Department said today in Washington. Imports fell while exports rose the most since July 2008.

A shrinking deficit signals trade will contribute more to U.S. gross domestic product as exports to emerging economies such as Brazil increase. Meanwhile, U.S. demand for imported auto parts was held down in May by production cutbacks and factory shutdowns by Detroit-based General Motors Corp. and Chrysler LLC, based in Auburn Hills, Michigan, two of the nation’s three largest automakers.

“Trade looks like it’s going to be a big plus for second quarter GDP,” said James O’Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut. “It looks like the plunge in exports is over, which is of course consistent with the goal of the economy starting to stabilize after a dramatic collapse.”

The trade gap was projected to widen to $30 billion, from an initially reported $29.2 billion in April, according to the median forecast in a Bloomberg News survey of 71 economists. Deficit projections ranged from $34 billion to $25.5 billion.

Dollar Lower

The dollar remained lower against the yen after the report, trading at 92.24 yen per dollar at 9:11 a.m. in New York, compared with 92.99 late yesterday. The dollar was at $1.3902 per euro from $1.4020.

Exports rose 1.6 percent, the biggest increase since July 2008, to $123.3 billion, as sales of petroleum products, chemicals and industrial machinery increased. Exports this year have gotten a boost from aircraft manufacturers. Chicago-based Boeing Co., the world’s second biggest commercial-plane maker, said it got 20 orders in May, up from 17 in April.

Imports fell 0.6 percent to $149.3 billion after decreasing the prior month. The import figures were held down by a decline in purchases of foreign crude oil to $12.9 billion from $13.8 billion, reflecting lower demand for petroleum even as prices rose. The cost of imported oil averaged $51.21 a barrel, up from $46.60 in April, according to today’s report. Oil prices have been falling since June 11.

Import Prices

Prices of goods imported into the U.S. rose 3.2 percent in June, the fourth monthly increase, as oil costs jumped by the most in a decade, a separate government report showed today.

Imports of industrial supplies, which include crude oil, fell by $656 million to $33.1 billion. Demand for consumer goods from abroad was little changed at $35.5 billion.

After eliminating the influence of prices the trade deficit narrowed to $36.2 billion from $40.1 billion. Those numbers are used to calculate gross domestic product.

The trade gap with China increased to $17.5 billion from $16.8 billion in the prior month. Deficits with Canada, Mexico and Japan shrank. The deficit with the European Union fell 48 percent to $2.8 billion as demand for European goods declined.

While symptomatic of global weakness, the narrowing of the trade gap prevented the U.S. economy from contracting even more last year. Trade contributed 1.4 percentage points to growth in 2008, the most since 1980.

The boost to U.S. growth from net exports continues this year. The economy shrank at a 5.5 percent annual rate in the first quarter, even as net exports made a positive contribution of 2.4 percentage points.

IMF Outlook

World trade this year may shrink 12 percent before growing 1 percent next year, the International Monetary Fund said this week in its latest global growth outlook. The world economy will shrink 1.4 percent this year and then recover next year with a 2.5 percent expansion, according to the forecast.

China, the second-largest U.S. trading partner after Canada, will grow 7.5 percent this year and, together with Brazil and other emerging economies, help bring an end to the global slump, the IMF said.

China will “actually be one of the motors of the world economy, replacing the U.S. consumer,” billionaire investor George Soros said this week in an interview with Bloomberg Radio.

Santa Clara, California-based National Semiconductor Corp., whose memory chips supply the top five mobile-phone manufacturers, said June 11 that stimulus spending in China has helped boost its sales.

“We’re benefiting from the buildup in China but we’re not counting on it to go on forever,” Chief Executive Officer Brian Halla said in a telephone interview. “Things have stabilized. I don’t think anyone in this industry is positive enough to say that we’ve recovered.”

To contact the reporters on this story: Bob Willis in Washington at bwillis@bloomberg.net

Last Updated: July 10, 2009 09:14 EDT