August trade deficit narrows unexpectedly to $30.7 billion

WASHINGTON -- The U.S. trade deficit unexpectedly narrowed in August as exports posted a small gain, while imports fell on a big drop in demand for foreign oil.

The Commerce Department said today that the trade deficit declined 3.5 percent to $30.7 billion, surprising economists who had expected higher oil prices to push the imbalance to $33 billion. Oil prices did shoot up, but the volume of shipments dropped sharply in August.

The continued rise in exports may be viewed as an encouraging sign that the global economy is starting to recover from a severe recession that began in the United States and quickly spread to other parts of the world.

For August, exports of goods and services edged up 0.2 percent to $28.2 billion, the fourth straight gain. The strength reflected higher sales of American farm products including soybeans and wheat, and increases in sales of autos and related parts, industrial engines and telecommunications equipment.

Through the first eight months of this year, the trade deficit is running at an annual rate of $357 billion, about half of last year's $695.9 billion imbalance. That huge decline reflects the recession that sharply dampened demand for imported goods.

Despite the August improvement, economists expect the deficit to rise in coming months on the back of a rebounding U.S. economy, which will start importing more foreign products. But that impact will be dampened somewhat by rising exports as American manufacturers benefit from a revival in the global economy.

The deficit with China dipped slightly to $20.2 billion, down 0.9 percent from July. Through August, the deficit with China totals $143.7 billion, down 15.1 percent from last year's record pace. Even with the small improvement, trade tensions have been rising between the two economic powers with China denouncing a move by the Obama administration last month to impose punitive tariffs on imports of Chinese tires.

Imports dropped 0.6 percent to $158.9 billion, reflecting a 5.7 fall in petroleum imports to $21 billion. A big decrease in the volume of shipments offset a sharp rise in prices. The average price of a barrel of imported crude oil rose to $64.75, up from $62.48 in July and the highest since last November.

The drop in oil imports in August offset a jump in foreign-made autos and parts, which rose 8.6 percent to $14.6 billion. Economists believe the government's Cash for Clunkers' sales incentives for buyers to trade in their old cars for more fuel efficient vehicles helped drive the increase.

Imports of autos and related parts had jumped even more in July, as plants owned by General Motors and Chrysler ramped up production. Those companies had curtailed operations in May and June as they struggled to emerge from bankruptcy protection.

Both companies, as well as foreign automakers with plants in the U.S., make use of foreign-made auto parts in their U.S. manufacturing operations.