A falling dollar boosted U.S. exports to record highs, pushing the trade deficit down to its lowest level in 28 months.
The trade gap with China, however, worsened as retailers brushed aside worries about a string of high-profile recalls to stock their shelves with Chinese imports for holiday shoppers.
The Commerce Department reported Friday that the trade deficit dipped 0.6 percent in September to $56.5 billion, the smallest imbalance since May 2005.
The improvement came from a 1.1 percent jump in U.S. exports, which climbed to a record $140.1 billion. The dollars' decline against many major currencies has made U.S. goods cheaper and more competitive in foreign markets. American producers are also benefiting from stronger growth overseas.
Imports also rose in September, climbing by 0.6 percent to $196.6 billion, the second highest level on record. Oil imports fell, however, by 0.8 percent to $10.5 billion, an improvement that is likely to be temporary given the recent surge in oil prices to close to $100 a barrel.
The deficit with China rose to the second highest level on record, up 5.5 percent to $23.8 billion, reflecting big gains in shipments of Chinese-made televisions, cell phones, computers and toys as retailers stocked their shelves for Christmas.
Those increases were occurring despite a rash of recalls of Chinese products this year of everything from toys with lead paint to defective tires and chemical-tainted toothpaste and pet food ingredients. Critics said the rise in imports was occurring because many of the Chinese goods are not made in the United States any more because companies have moved their factories overseas.
"These figures highlight our dependence on imports even when millions of toys and food are being recalled," said Sen. Sherrod Brown. "Job-killing trade agreements shut down our factories, hurt our communities and send toxic toys into our children's bedrooms."
So far this year, the trade deficit is running 7.4 percent below last year's record of $758.5 billion, putting the country on track to record a smaller trade gap after five straight years of record highs.
The Bush administration, which scored a trade victory this week when the House passed a free trade agreement it had negotiated with Peru, hailed the surge in demand for U.S. exports as evidence that the administration's strategy of opening overseas markets is working.
"We need to build on our export growth momentum and the best way to do that is to pass the four free trade agreements with Peru, Colombia, Panama and Korea," said Commerce Secretary Carlos Gutierrez.
While the Peru deal is expected to clear the Senate this year, the other three agreements are unlikely to come up for votes given strong opposition from many Democrats and labor unions who contend the playing field is still stacked against American workers who have seen 3 million manufacturing jobs disappear since 2000.
"American workers need real action from Congress on dealing with our trade deficits ... not more disastrous free trade agreements," said Teamsters President James Hoffa.
Private economists said the boom in exports is coming at a crucial time for the economy, helping to cushion the blows from the housing crash and a severe credit crunch.
"Foreign trade is providing key support to U.S. growth at a time when domestic demand is faltering," said Nigel Gault, an economist at Global Insight, a private forecasting firm.
Gault said the better-than-expected trade performance in September would help boost third quarter growth to over 5 percent, up from an original estimate of 3.9 percent. He said further export gains in coming months would be crucial to keeping the country out of a recession. Many economists look for overall growth to slow to 1.5 percent or less in the final three months of this year and the first part of 2008.
Federal Reserve Chairman Ben Bernanke told Congress on Thursday that growth is likely to slow significantly in the current quarter, reflecting the deeper-than-expected housing downturn, but he predicted a rebound by mid-2008.
For September, America's foreign oil bill dropped by 0.8 percent to $10.5 billion reflecting a drop in volume. The average price for a barrel of imported crude rose to a record $68.51 in September and is expected to climb even higher with the recent spike in spot oil prices, which traded this week near $100 per barrel.
The imbalance with the European Union dropped a sharp 37.1 percent to $6.4 billion. The dollar has fallen to record lows against the 13-nation euro currency, which means U.S. products are cheaper in those markets while European goods are more expensive for American consumers.