September Trade Deficit Down
Falling Oil Prices Help, but Gap Still on Track for Record High

By Martin Crutsinger
Associated Press
Friday, November 10, 2006

Falling oil prices helped lower the U.S. trade deficit in September after it hit an all-time high in August, the Commerce Department reported yesterday. The trade imbalance with China, however, rose to a record high.

The overall deficit fell 6.8 percent, to $64.3 billion, in September from $69 billion in August. The drop of $4.7 billion was the biggest one-month decrease in more than five years.

The improvement came from a 10.5 percent decrease in the U.S. foreign oil bill, which fell to $26.3 billion. The volume of imports fell, and crude oil prices declined after hitting $77 a barrel over the summer. Oil for November delivery sold for $62.91 a barrel at the end of September. Yesterday, oil for December delivery sold for $61.16 a barrel.

Analysts said no quick fix should be expected for a deficit still on track to set a record for the fifth straight year. The deficit is running at an annual rate of $781.6 billion, compared with last year's record $716.7 billion.

"There is little in this report to tell me that once we get past the petroleum effect, there are any basic changes in the trade situation," said Joel L. Naroff, chief economist at Naroff Economic Advisors Inc. "With the Congress changing hands, the political pressure on the administration to do something about China is likely to build."

Rep. Nancy Pelosi (D-Calif.), in line to become House speaker in January, has been an outspoken critic of China's human rights record. Other Democrats are pushing legislation that would penalize China unless it allows its currency to rise in value against the dollar, which could help sell more U.S. products in China.

The deficit with China set a record of $23 billion in September. It is running at an annual rate of $228 billion this year, on pace to surpass last year's $202 billion, which was an all-time high for any U.S. trading partner.

The big increase in September came from imports of Chinese cellphones, television sets and toys as U.S. retailers stocked up for Christmas.

The decline in oil prices helped push total imports down 2.1 percent, to $187.5 billion in September. U.S. exports, helped by a big jump in sales of commercial aircraft, rose by 0.5 percent to an all-time high of $123.2 billion.

Commerce Secretary Carlos M. Gutierrez will lead a delegation of 25 U.S. companies to China next week. "While China is more open than before, much progress must still be made to provide fair access to American exporters and businesses," Gutierrez said.

Treasury Secretary Henry M. Paulson Jr. has pledged to pursue currency and other trade issues with China in negotiations with China's government. The initial meeting will take place next month in Beijing.