Trade deficit widens more than expected

WASHINGTON -- The U.S. trade deficit widened by the most in a decade in September as foreign oil prices rose to the highest level in nearly a year, swamping a fifth consecutive gain in exports.

Still, economists expect a rebounding global economy will keep pushing demand for exports higher, helping to bolster the U.S. recovery. The slide in the value of the dollar, which is down about 12 percent against a basket of major currencies since last spring, is expected to help boost exports of manufactured goods because it will make American goods cheaper in overseas markets.

The Commerce Department said Friday that the trade deficit jumped to $36.5 billion in September, the largest imbalance since January and more than the $31.7 billion increase economists had expected. The 18.2 percent rise from August was the largest monthly gain in percentage terms since a 20.6 percent jump in February 1999.

Exports, which have been rising since May, increased 2.9 percent to $132 billion, reflecting stronger sales of American autos, aircraft and industrial machinery.

Led by a 20.1 percent jump in oil shipments, imports rose to $168.4 billion. The 5.8 percent increase from August was the biggest in 16 years.

So far this year, the trade deficit is running at an annual rate of $366 billion, about half of last year's $695.9 billion deficit. But economists do not expect that trend to continue.

The monthly deficit is already significantly higher than the nine-year low of $26.4 billion hit in May and analysts expect the imbalances will keep rising in the months ahead.

Further rises in exports should provide significant support to U.S. manufacturers and the overall economy, but some of those gains will be offset by a rebound in imports as demand for foreign goods also picks up, analysts said.

The overall economy as measured by the gross domestic product grew at an annual rate of 3.5 percent in the July-September quarter, the strongest evidence to date that the most severe recession since the 1930s has ended.

However, analysts said the big jump in the September trade deficit was likely to shave the GDP advance when the government revises its estimate later this month.

Paul Dales, senior economist at Capital Economics, said the big trade gap would probably trim the GDP figure to 3 percent for the third quarter. While exports should support growth going forward, that impact will be negated largely by a surge in imports, which subtract from growth.

"Net trade is unlikely to make either a significant positive or negative contribution to GDP growth during the economic recovery," Dales wrote in a note to clients.

The deficit with China, which had been falling, jumped 9.2 percent to $22.1 billion in September, the highest imbalance in 10 months. For the year, the deficit with China is down 15.9 percent although the gap is still the largest the U.S. has with any country.

The deficit with Japan slipped 4.8 percent to $4.8 billion in September.

President Barack Obama was in Tokyo on Friday for the start of a weeklong trip to Asia that will take him to China, South Korea and Singapore. The administration has said the visit is intended to lift America's profile in a region of the world that accounts for one-fourth of America's export sales.

The Chinese central bank on Thursday modified the guidance it uses to manage its currency, the yuan, in relation to the U.S. dollar. The wording change raised hopes among economists that China was preparing to allow its currency to rise in value against the dollar, a change that would boost the competitiveness of American products in China.

American manufacturers contend that China is manipulating the value of its currency, keeping it undervalued by as much as 40 percent in relation to the dollar, which gives Chinese manufacturers a huge competitive advantage. American companies contend that the undervalued currency has played a major role in the loss of millions of U.S. manufacturing jobs over the past decade. The undervalued currency, however, is a boon to American consumers, lowering the cost of Chinese goods in the U.S.

The 2.9 percent rise in U.S. exports in September pushed them to their highest level since December, but they remained 19.7 percent below the all-time high of $164.4 billion set in July 2008. Exports fell sharply as the recession that began in the U.S. spread worldwide, crimping demand in many of America's major overseas markets.

The 5.8 percent increase in imports left them 26.6 percent below the all-time high of $229.3 billion, also set in July 2008. A jump in oil shipments, with the average price of a barrel of imported crude oil rising to $68.17, from $64.75 in August, led the increase.

Economists believe that oil prices will keep rising in the months ahead. On Friday, oil prices edged up above $77 per barrel, reflecting in part recent declines in the value of the dollar. Oil is priced in dollars and when the dollar weakens in value, foreign producers demand higher prices for their product to compensate.

For September, the U.S. trade deficit with the European Union edged up 1.9 percent to $5.5 billion. The deficit with Canada was unchanged at $1.5 billion and the deficit with Mexico jumped 15.4 percent to $4.6 billion, the largest imbalance since October 2008.