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A weaker dollar and surging exports from the US chipped away at its trade gap with the rest of the world in October, raising hopes for a boost in economic output.
The trade deficit declined by 13.2 per cent to $38.7bn, according to Bureau of Economic Analysis figures released on Friday. That was its lowest level since January.
The US recovery has been held back by sluggish export growth coupled with soaring imports. The US trade gap has grown by almost 20 per cent from
a year ago and net trade knocked 1.8 percentage points off the third-quarter growth rate of 2.5 per cent.
The new data are especially encouraging because they show stronger overseas demand for US industrial goods and suggest that some of the rise in imports this year may have been temporary.
Combined with the fiscal stimulus in President Barack Obama’s tax deal they suggest stronger growth in the fourth quarter of this year and in 2011.
“This data will then support upward revisions to GDP forecasts to 3 per cent [for Q4 2010] or even well above,” said Alan Ruskin, a strategist at Deutsche Bank.
Exports from the US
rose by 3.2 per cent to $158.7bn, the highest level since mid-2008. But weaker domestic demand was a drag on imports, which fell by 0.5 per cent to $197.4bn.
The US imported less industrial materials, capital goods and food in October. Economists at Capital Economics noted that the US imported less oil during the month but that the its oil import totals could rise in November as prices have increased.
In October the US also managed to shrink its politically sensitive trade gap with China from $27.8bn to $25.5bn. China said on Friday that its trade surplus had been $22.9bn in November, down from the $27.15bn registered in October.
The US government has been putting pressure on China to let its currency appreciate in an effort to reduce the bilateral shortfall, which accounts for two-thirds of the US trade deficit with the rest of the world.
Michael Woolfolk, a currency strategist at BNY Mellon Global Markets, noted that in the past five years the value of the renminbi had increased by almost 25 per cent against the dollar while China’s proportion of the US trade deficit had doubled.
“Currency revaluation does not appear to be the answer,” Mr Woolfolk said. “The structural US trade deficit continues to persist on weak Chinese demand for US exports.”
Last week the US reached a long-awaited trade pact with South Korea, agreeing that a 2.5 per cent tariff on its auto exports to the US would be phased out over five years, rather than lifted immediately.
Owen James, an economist at the Centre for Economics and Business Research, argues that trade agreements with South Korea and India are steps in the right direction for the US economy, but that government stimulus measures that have weakened the US dollar could pose other risks.
“The key risk is how emerging economies react to the effective competitive devaluation of the dollar,” Mr James said. “A lurch towards protectionism could derail the global recovery.”
Separately on Friday, the Thomson Reuters/University of Michigan index of consumer sentiment revealed rising confidence among US shoppers in early December. Its index rose from 71.6 to 74.2, based on a scale of 100, reaching the highest level in half a year.
Confidence has been supported by rising stock prices and signs of a gradual labour market recovery. Rosier feelings about current conditions and the coming six months could be a good sign for consumer spending during the crucial holiday shopping season.