Strong Exports Compress Trade Deficit

By Jason Simpkins
Associate Editor

 The September U.S. trade deficit narrowed slightly from the month before, as the U.S. dollar continued its slump and continued global growth continued to boost demand for lower-priced U.S. goods.

The trade gap shrank 0.6% to $56.5 billion from a revised $56.8 billion in August, according to Friday’s report from the U.S. Commerce Department. Through September, the trade deficit is running at an annual rate of $703.4 billion, down 7.4% from last year's $758.5 billion. 

Global trade, instead of being "the drag that it has been for the last 15 years, is finally becoming a net positive," Brian Fabbri, chief economist at BNP Paribas (BNP) told Bloomberg News. "It will revise real GDP growth up."

A weak dollar made U.S. exports all the more attractive to red-hot foreign economies looking for bargains.  Exports rose 1.1%, reaching a new high for the seventh consecutive month. The total value of exports out of the country was $140.1 billion.

The dollar has fallen to record lows against the 13-nation European euro currency, which means that U.S. products are cheaper in those markets. It also means European goods are more expensive for American consumers. As a result, the U.S. trade deficit with the European Union dropped 37.1% to $6.4 billion.

The deficit with Canada, America's largest trading partner, dropped by 3.2% to $4.9 billion, while the imbalance with Mexico fell 9.3% to $6.3 billion. Skyrocketing growth in foreign economies were also integral in the demand for U.S. exports.

China, India, and South America, in particular, were eager to fuel their economic expansions with American goods. China’s economy has expanded by more than 11% in each of the past two quarters. India grew 9.3% in the 12 months ended in June, and Argentina, South America’s second-largest economy, expanded 8.7% according to Bloomberg News.

The shrinking trade deficit could prompt analysts to raise their expectations for U.S. economic growth, in spite of the severe fallout from the collapse of the housing sector. Some analysts even believe that last quarter's gross-domestic product (GDP) growth rate of 3.9% could be revised up to 5%.

"The Fed has at least one sector to bank on if it is hoping that the economy will skirt a recession," said Joel Naroff, president and chief economist at Naroff Economics, an economic-research firm based in Pennsylvania. "For equity investors, the narrowing trade deficit is one piece of good news in an environment where we are suffering from a continuing barrage of financial sector losses."

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