October trade gap worst in 3 months

From Tribune news services

December 13, 2007

WASHINGTON - The Commerce Department said Wednesday that the trade deficit rose to the highest level in three months in October, with record oil prices and a flood of toys and other imports from China swamping a solid gain in American exports.

A second report from the Labor Department showed prices of imported goods jumped 2.7 percent in November, the biggest increase in 17 years, though prices excluding petroleum rose just 0.7 percent.

The trade gap grew 1.2 percent, to $57.8 billion, higher than the $57.4 billion expected by economists. Imports, exports and the deficit with China were the biggest ever.

Excluding petroleum, the imbalance was the smallest since 2004. A weaker dollar and growing economies abroad have propelled demand for American-made goods to record levels for eight consecutive months.

"We'll see modest improvement in the months ahead in the trade balance," said Julia Coronado, a senior economist at Barclays Capital in New York. "We are seeing some offset to housing from the trade balance, and we expect trade to be a positive for growth."

Exports rose 0.9 percent, to $141.7 billion. An increase in shipments of capital goods, including commercial aircraft, led the gain. Exports to Canada, South and Central America and to the nations within the Organization of the Petroleum Exporting Countries were the highest ever in October.

Imports increased 1 percent, to $199.5 billion. Petroleum imports rose 8.3 percent, to a record $29.6 billion. Oil averaged a record $72.49 a barrel in October.

A cheaper dollar is helping to boost exports by making American-made goods less expensive to overseas buyers. The dollar was down 8.2 percent against a trade-weighted basket of currencies from its biggest trading partners in the 12 months ended in October, based on Federal Reserve data.

"The lower dollar and strength in economies abroad should ensure pretty good export growth in coming months," said Kevin Logan, senior market economist at Dresdner Kleinwort in New York. The deficit with China jumped 9.1 percent, to $25.9 billion, a record for a single month. The trade imbalance with China is running at an annual rate of $256 billion, putting it on track to surpass last year's $233 billion deficit, the highest ever recorded with a single country.

Through the first 10 months of this year, the trade deficit is running at an annual rate of $704 billion, down by 7.1 percent from the same period last year, putting the country on track to see the first narrowing of the shortfall after five consecutive years of record imbalances.

The Labor Department report said the month-to-month jump in import prices was the largest since October 1990. The 2.7 percent increase was higher than the 2 percent advance expected by economists.

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Pain in the wallet

11.4 percent

Rise in prices of imported goods compared with a year earlier, the biggest 12-month increase since record-keeping began in 1982

9.8 percent

Rise in price of imported petroleum and petroleum products over the last month

16.2 percent

Rise in price of natural gas over the last month

6.6 percent

Rise in costs of industrial materials, such as metals, over the last month

-0.2 percent

Decline in food prices, the first decrease since March