US trade gap narrows to 2-year low

Updated: 2007-11-10 15:35

Now there comes a good news for America. The US trade deficit unexpectedly fell to a two-year low in September as a weakening dollar has fueled exports, offsetting the impact of soaring oil prices.

The trade gap narrowed to US$ 56.5 billion, 0.6 per cent lower than US$ 56.8 billion in August, the U.S. Commerce Department said Friday.

The narrowing of the U.S. trade gap suggested stronger-than-expected economic activity in the third quarter that could lead to an upward revision of the 3.9 percent rise in gross domestic product (GDP) initially estimated by the Bush administration.

"It's a larger improvement than anticipated, and likely will lead to a revision of growth in the third quarter," said Sal Guatieri, BMO Capital Markets. "We could see the GDP number revised to 4.5 percent or so."

The improving trade snapshot came against an increasingly bleak outlook for the US economy amid a persistent housing slump and forecasts of sharply slowing growth for the fourth quarter as high oil prices bite.

"With domestic spending growth expected to slow sharply as housing continues to decline and consumers wilt under pressure from falling house prices and rising energy prices, strong export growth is crucial to keep the US economy moving forward," said Nigel Gault, US economist at Global Insight. He said the contribution of foreign trade to growth is "crucial if the US is to avoid recession."

Exports led the September improvement, rising 1.1 percent to a record US$140.1 billion dollars as Americans sold more food as well as industrial, automotive and consumer goods abroad.

The dollar's depreciation in the past few months played a role in the export gains. The trade gap with the European Union plunged 37.1 percent to US$ 6.4 billion, and fell 3.2 percent with Canada to US$ 4.9 billion.

The weak dollar is performing its magic as exports are surging and the trade deficit is narrowing, analysts believe.

The head of the Manufacturers Alliance/MAPI, Thomas Duesterberg, welcomed the improving balance of trade as "one of the few remaining pillars of growth in the weakening US economy."

"Recent weakness in the dollar should maintain the improving trend in the future," he added.


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