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U.S. Trade Gap Drops as Exports Rise to Two-Year High

The trade deficit in the U.S. shrank more than forecast in October as a weaker dollar and growing economies overseas propelled exports to a two-year high.

The gap narrowed 13 percent to $38.7 billion, less than the lowest estimate of 78 economists surveyed by Bloomberg News and the smallest since January, Commerce Department figures showed today in Washington. Exports were the strongest since August 2008 as Mexico and China bought record amounts of U.S. products.

3M Co. and General Dynamics Corp. are among companies that will probably benefit from growing demand in markets like China, Brazil and South Korea, which this year are among the top-10 buyers of American-made goods. Imports stagnated in October as U.S. demand for crude oil plunged, an outcome that may prove to be temporary as the world’s largest economy picks up.

“Exports will continue to do well as the generally weaker dollar and strong growth in emerging markets are helping,” said Nariman Behravesh, chief economist at IHS Inc. in Lexington, Massachusetts, who projected the trade gap would narrow. “Things are improving in the economy so we expect to see imports pick up as well. We’ll have export-led growth in the U.S. next year as exports grow faster than imports.”

Stocks rose, led by rising shares of commodity producers on growing evidence that global demand was improving. The Standard & Poor’s 500 Index climbed 0.2 percent to 1,235.82 at 9:44 a.m. in New York. Treasury securities fell, pushing the yield on the benchmark 10-year note up to 3.27 percent from 3.21 percent late yesterday.

Rising Costs

Another report showed the cost of goods imported into the U.S. rose in November by the most in a year, led by gains in commodity prices such as fuels, agriculture products and metals. The 1.3 percent increase in the import-price index exceeded the median forecast in a Bloomberg survey and followed a revised 1 percent gain in October, Labor Department figures showed.

The trade gap was projected to be little-changed at $43.8 billion from an initially reported $44 billion in September, according to the median forecast of economists surveyed. Estimates ranged from deficits of $39.5 billion to $46.6 billion. The Commerce Department revised the September shortfall up to $44.6 billion.

After eliminating the influence of prices, which are the numbers used to calculate gross domestic product, the trade deficit fell to $45.2 billion, the lowest since April, from $50.3 billion. The figure was smaller than the third-quarter average, indicating trade will contribute to growth this quarter.

Sales Overseas

Exports increased 3.2 percent to $158.7 billion, boosted by sales of foods, automobiles, engines and industrial supplies like fuel oil and natural gas.

Since reaching a one-year high on June 7, the dollar has fallen 6.6 percent against a trade-weighted basket of currencies. The drop makes American goods cheaper to buyers abroad and will keep spurring manufacturing, which expanded for a 16th consecutive month in November.

Growing overseas economies are also contributing to demand for U.S. goods. China, set to become the world’s second-largest economy this year, had a 9.6 percent gain in third-quarter gross domestic product from a year ago. Singapore, in the running to be the world’s fastest-growing economy this year, expanded 10.6 percent while Brazil, South America’s biggest economy, grew 6.7 percent.

Manufacturers Benefit

General Dynamics, based in Falls Church, Virginia, is seeing “strong international order activity and interest, particularly in the emerging markets,” Chief Executive Officer Jay Johnson said in a Dec. 2 industry conference presentation.

St. Paul, Minnesota-based 3M, the maker of Scotch tape and films to brighten television screens, is expanding in emerging markets, which make up one-third of its sales and may climb to as much as 45 percent by 2015, according to company estimates.

“These opportunities continue to grow,” George W. Buckley, chief executive officer, said in a Dec. 7 conference call. Overseas sales will benefit from “India and Latin America, gathering momentum in sort of China-like style.”

President Barack Obama is seeking to double American exports over the next five years. The Commerce Department has asked industry groups to review its proposal to relax export controls for technology items with military uses, covering sales to 37 allies including Germany, Japan and Canada.

Less Crude Oil

Imports fell 0.5 percent to $197.4 billion from $198.4 billion in the prior month. The value of crude oil purchases fell to $18.9 billion from $21 billion in September as the lowest volume since February swamped an increase in the fuel’s cost.

The trade gap with China shrank to $25.5 billion from $27.8 billion.

China’s trade surplus with the U.S. remains a thorny issue as some members of Congress accuse the Asian nation of keeping its currency too low in order to boost sales overseas. The renminbi’s advance of 0.1 percent last month and 0.3 percent in October fell short of the 1.7 percent climb in September that Treasury Secretary Timothy F. Geithner signaled was appropriate.

China today reported a monthly trade surplus of $22.9 billion for November, exceeding the median forecast in a Bloomberg News survey. The excess of exports to America over imports was about $16.7 billion, equivalent to about three quarters of the total.

Improving U.S. demand and the need to restock inventories led to gains in imports that swamped the rise in exports over the past two quarters. A widening deficit subtracted 1.76 percentage points from GDP in the third quarter as the economy expanded at a 2.5 percent annual rate.

Imports will probably grow at a slower pace as inventories are now better aligned with sales, indicating the deficit will stabilize and trade may no longer be an obstacle to GDP.

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

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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