The U.S. trade deficit narrowed by 3.5 percent in September, but at $51.6 billion the gap was still the third-highest ever for a single month.
The September trade data, reported yesterday by the Commerce Department, prompted economists to warn anew that the dollar, which briefly hit a record low against the euro yesterday morning, is likely to continue moving downward in the months ahead.
The improvement in the deficit was attributable to a 0.8 percent rise in exports, to $97.5 billion, and a 0.8 percent decline in imports, to $149 billion. The resulting gap was a couple of billion dollars less than economists had predicted in surveys.
But analysts noted that the deficit has remained at record levels for much of this year, exceeding $50 billion in each of the past four months. It is on track to approach $600 billion for the full year, easily topping the previous record of $496 billion reached in 2003. The trend isn't expected to reverse soon.
"We do not think this report signals any significant turning point," Goldman Sachs told clients in an e-mailed newsletter.
Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, N.Y., agreed: "There is no chance the overall deficit is turning down, but the rate of increase appears to be slowing."
The steady worsening in the trade data this year has rekindled fears that the United States is becoming dangerously dependent on foreign investors to the point that it is risking a financial crisis. The hundreds of billions of dollars that Americans spend on imported cars, electronics, clothing and other goods from overseas is effectively borrowed from foreigners, who invest the dollars they receive in U.S. Treasury bonds and other securities. As U.S. indebtedness has risen, so have worries that foreigners might suddenly unload their holdings of U.S. stocks and bonds, sending the dollar -- and financial markets generally -- into a tailspin.
Concern about the trade gap has been one major factor behind the sharp drop in the dollar in recent weeks. Shortly after the trade figures were released yesterday, the dollar traded at $1.3007 per euro, the first time that the common European currency has risen above the $1.30 level.
The U.S. currency later rebounded, however, closing at $1.2895 per euro. The dollar rose against the Japanese yen. Currency traders speculated that Japan's central bank might soon buy large amounts of dollars in the hope of preventing the yen from strengthening further, as it did earlier this year. A strong yen makes Japanese exports less competitive.
"In the long run, the trade deficit is unsustainable, and it should bother the markets," said Beth Ann Bovino, an economist at Standard & Poor's in New York. "It will likely drive the dollar lower, although it was held up before by central bank intervention, and we suspect the Bank of Japan will come back again [to buy dollars] if necessary."
A decline in the dollar should eventually help curb the trade deficit, because a lower exchange rate for the greenback spurs U.S. exports by making them cheaper on global markets, while dampening Americans' demand for imports, which become more expensive. If oil prices continue to fall from recent record levels, that should also help lower the United States' bill for imported petroleum.
But many economists believe that the dollar still hasn't fallen far enough to shrink the deficit appreciably, because U.S. imports are so much greater than U.S. exports. "For the trade deficit to fall on a sustained basis, export growth would need to outstrip import growth by a hefty margin," J.P. Morgan Chase economists observed in a note to clients yesterday.
The most positive development in yesterday's report was the rise in exports, which was spread fairly widely, including increases of $600 million in exports of food, feeds and beverages, $500 million in industrial supplies and materials, $300 million in capital goods and $300 million in consumer goods. But even at the level reported yesterday, exports in September were only 0.6 percent higher than they were in May.
The politically sensitive bilateral deficit with China hit another all-time high of $15.5 billion.