Trade Deficit Shrinks as Exports Continue to Surge

The U.S. trade deficit unexpectedly narrowed in September as the strongest global economy in almost three decades and a weaker dollar fueled exports, prompting economists to raise their estimates for third-quarter growth.

Customers abroad snapped up U.S. exports as varied as cotton and semiconductors, offsetting the deepening housing recession that is eroding consumer confidence. Exports have reached a record for each of the past seven months, the longest surge since 2000.

"There's been an all-cylinder global boom in 2007, and that's what's been driving up exports," said David Malpass, chief economist at Bear Stearns in New York.

The trade gap shrank 0.6 percent to $56.5 billion, the smallest since May 2005, from a revised $56.8 billion in August, the Commerce Department said.

Trade contributed more to growth in the second and third quarters than in any six-month period since one in 1990-91.

The export surge may help explain why the Bush administration has suggested it's comfortable with the dollar's drop in all but one of the past five years, even as officials say they support a strong dollar. The dollar has fallen 8 percent against a basket of currencies from major trading partners since January 2006, according to Federal Reserve figures.

Malpass warned that a weaker currency isn't a panacea for faltering economic growth. "The weak dollar has the negative effect of discouraging investment in the U.S., and so it's not going to be able to add to export growth over time," he said.

A rally in crude oil drove up import prices last month, the Labor Department said. The 1.8 percent increase, the most in 17 months, followed a revised 0.8 percent gain in September. Excluding petroleum, expenses rose 0.5 percent.

Exports rose 1.1 percent to $140.1 billion, as almost all major categories, including food, raw materials, automobiles and consumer goods registered gains.

The increase was restrained by a drop in deliveries of commercial aircraft, which probably reflected fewer shipments by Boeing. The world's second-biggest plane maker delivered 23 aircraft to foreign buyers in September, down from 30 in August.

Imports increased 0.6 percent to $196.6 billion, the second-highest amount on record. Americans bought more crude oil, automobiles and computers from companies overseas.

Faster growth overseas is also making up somewhat for slower demand at home. China expanded 11.5 percent in the third quarter from a year earlier. India grew 9.3 percent in the 12 months ended in June, and Argentina, the second-biggest economy in South America after Brazil, expanded 8.7 percent.

In contrast, the U.S. economy, the world's largest, grew 2.6 percent in the year to September.

The trade deficit with China widened 5.5 percent to $23.8 billion. Imports from China were the second biggest on record. So far this year, China has sent more goods to the United States than has Canada, America's biggest trading partner.