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U.S. trade gap widens more than expected

The U.S. trade deficit widened in September by an unexpectedly large 18.2 percent, the most in more than 10 years.
/ Source: The Associated Press

A lower dollar appears to be boosting the U.S. economy only gradually, with higher prices on imported oil helping outweigh the benefit of cheaper American exports.

The latest evidence was a government report Friday that the U.S. trade deficit jumped in September by the largest percentage amount in more than a decade. A big culprit was foreign oil, whose prices hit their highest point in nearly a year. That helped eclipse a fifth straight gain in U.S. exports.

Economists think a rebounding global economy will keep raising demand for U.S. exports. The dollar's value has dropped about 12 percent against a basket of major currencies since last spring. A lower dollar can help boost U.S. exports because it make them cheaper for foreigners to buy.

The question is how fast a lower dollar can narrow the trade gap and invigorate the U.S. economy.

For now, the value of U.S. exports is still about 20 percent below where they before the financial crisis erupted last year. And Paul Dales, senior economist at Capital Economics, said exports and imports are likely to continue rising at roughly the same pace. If so, U.S. trade wouldn't likely contribute to U.S. economic growth during the recovery.

The Commerce Department report said the trade deficit jumped to $36.5 billion in September. It was 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 about 3 percent, reflecting stronger sales of American autos, aircraft and industrial machinery. Imports were led by a 20 percent jump in oil shipments.

Imports rose
Overall, imports in September rose 5.8 percent above the level in August — the biggest rise 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 the monthly deficit is already far higher than the nine-year low of $26.4 billion hit in May. And analysts expect the imbalance to keep rising in coming months.

Further rises in exports should provide some aid to U.S. manufacturers. But 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. But analysts said the widening September trade gap would likely reduce the GDP figure when the government revises its estimate later this month.

In addition, oil rose sharply during October, a factor that could help widen the trade deficit further once the government reports last month's trade figure.

The U.S. 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 U.S. trade deficit with China is down about 16 percent, though 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.

China's yuan
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. That gives Chinese manufacturers a competitive advantage.

U.S. companies contend that the undervalued currency has played a 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 America's 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 briefly 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.