Trade deficit shrinks for fourth straight month

WASHINGTON – The U.S. trade deficit narrowed in October to its lowest point of the year after Americans bought fewer foreign cars and imported less oil.

The shrinking trade gap boosted growth over the summer and may do so again in the final three months of the year. But economists worry the trend could reverse next year, especially if Europe's debt crisis worsens.

The Commerce Department said Friday that the trade deficit shrank 1.6 percent to $43.5 billion. It was the fourth straight monthly decline.

Overall imports fell 1 percent to $222.6 billion, which largely reflected a 5 percent decline in oil imports. The average price of imported oil fell for the fifth straight month to the lowest level since March. Oil prices rose last winter because of turmoil in the Middle East and North Africa.

Exports slipped 0.8 percent to $179.2 billion, the first drop after three months of gains. Shipments of industrial supplies, such as natural gas, copper and chemicals, fell. Exports of autos and agricultural goods also dropped.

A lower deficit is the latest sign that the economy has rebounded after nearly stalling in the spring. It boosts economic growth because it typically means foreign nations are buying more American goods. That can lead to more jobs and higher consumer spending, which fuels 70 percent of economic activity.

Economists expect the deficit to widen in the coming months. Oil prices are increasing and Europe is likely to import fewer U.S. goods as its economy weakens. At the same time, U.S. businesses are stocking up on foreign goods as consumer demand improves.

"Exports to Europe are bound to weaken substantially, while imports will pick up steam as U.S. companies rebuild inventory," Ian Shepherdson, chief U.S. economist at High Frequency Economics, said in a note to clients.

Excluding oil, the trade deficit rose to $19.1 billion in October from $17.6 billion the previous month.

Imports of consumer goods increased in October, as retailers stocked up for the holiday shopping season. The U.S. imported more televisions, toys and games, audio equipment and other household goods. Pharmaceutical imports also increased.

Imports of industrial equipment, such as computers, aircraft and electrical equipment, also increased. That suggests companies are investing more in capital goods, a good sign for economic growth.

Through October the deficit is running at a $558.3 billion annual pace, 11.6 percent higher than last year's imbalance of $500 billion.

The deficit shrank every month in the July-September quarter, as exports grew. That contributed almost a half-point to the economy's 2 percent annual growth rate in the quarter.

Economists expect slightly stronger growth in the final three months of the year.

Recent data show the economy has strengthened this fall and hiring has picked up.

Employers added a net total of 120,000 jobs last month. The economy has generated 100,000 or more jobs five months in a row — the first time that has happened since April 2006.

The unemployment rate fell in November to 8.6 percent, its lowest level in two and a half years. Half of that the drop reflected a growing number of people who gave up looking for work and were no longer counted as unemployed.

Still, the number of people seeking unemployment benefits has steadily declined over the past three months, a positive sign for future hiring.

Retailers reported that shoppers got off to a healthy start over the Thanksgiving holiday weekend. And consumer confidence rose sharply last month, though it is still below levels that are consistent with a healthy economy.

In October, Congress approved free trade agreements with South Korea, Colombia and Panama, after four years without any new trade deals. The administration says the three deals will boost U.S. exports by $13 billion a year.

The politically sensitive trade deficit with China was unchanged in October at $28.1 billion. Both imports from China and U.S. exports to that country rose to record level. So far, it is on track to set a record as the highest imbalance the United States has ever recorded with a single country.

In October, the Senate approved legislation that would allow the administration to impose penalty tariffs on Chinese products sold in the United States if China does not do more to allow its currency to rise in value against the dollar. The bill faces an uncertain fate in the House.

Critics charge that China is keeping its currency artificially low against the dollar to make Chinese goods cheaper in the United States and American products more expensive in China.