Trade Gap Unexpectedly Widens on Surge of Oil and Auto Parts Imports
By Don Miller
Associate Editor
Money Morning
The trade deficit in the U.S. grew by an unexpectedly large 18.2% in September, the most in a decade, reflecting rising demand for imported oil and imports from China.
The gap grew to $36.5 billion, the highest level since January, from a revised $30.8 billion in August, the Commerce Department said today (Friday). Imports jumped the most in 16 years, overcoming a gain in exports.
U.S. exports and imports were at the highest levels since December 2008, in a sign that the U.S. economy is recovering. Imports grew 5.8% in September, the biggest monthly gain since March 1993, while exports rose 2.9%.
Import demand may stay high in the near future as businesses replenish inventories and consumer demand picks up in the wake of an improving economy. Demand for U.S. products may also drive exports higher as the dollar falls amid economic expansion in Asia and Europe
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“Sometimes what looks bad on the surface is actually quite good and I think that’s the case this time around,” Sal Guatieri, a senior economist at BMO Capital Markets in Toronto told Bloomberg News . “Exports are growing strongly and imports are turning up because domestic spending has turned the corner.”
The trade gap exceeded the median forecast of $31.8 billion, according to a Bloomberg survey of 77 economists as oil imports from the Organization of Petroleum Export Countries (OPEC) increased to $11.9 billion in September. The average price for imported oil leapt to $68.17 per barrel, the highest since November 2008.
Purchases of foreign-made autos and parts jumped by $1.7 billion to $16.4 billion, due mainly to a $1.3 billion increase in imports from Canada and Mexico as domestic vehicle production gained steam. South Korean imports also increased.
Some analysts had expected a larger surge in exports, as the precipitous drop in the value of the dollar versus other major currencies makes American goods more affordable overseas.
But “the overall upturn in U.S. demand is trumping the fall of the dollar,” Craig Peckham, an equity trading strategist with Jefferies and Company in New York told Reuters.
Earlier this year, world trade plummeted and narrowed the gap to $26.4 billion in May, its lowest level since November 1999. As economic activity begins to pick back up, trade flows are gaining momentum as massive stimulus from governments and central banks lift the global economy out of the worst downturn since the Great Depression.
The U.S. Commerce Department said last month the economy grew at an annual rate of 3.5% in the third quarter after four straight quarters of contraction.
But the trade numbers also provide added urgency to talks U.S. President Barack Obama will have with Chinese leaders next week.
The closely watched U.S. trade deficit with China was the highest since November 2008, growing 9.2% to $22.1 billion as imports jumped to $27.9 billion, bucking the overall trend.
The trade gap with China shrank only by 15.9% in the first three quarters of the year. By comparison, the gap with Canada declined by 79.6%, while the gaps narrowed by 42% with the European Union and 71.8% with OPEC.
The discrepancy has buttressed contentions that the Chinese Yuan is still overvalued against the dollar, providing Chinese companies an unfair trade advantage.
Obama is expected to raise the exchange rate issue during his visit with Chinese leaders next week in Beijing. He is in Japan on today and will travel to Singapore for this weekend’s annual summit meeting with leaders of the Asia Pacific Economic Cooperation (APEC) forum.
Obama has promised to press for a rebalancing of world trade so that countries in Asia would stimulate more domestic demand while decreasing exports to the U.S and opening their markets to more American goods.
News & Related Story Links:
- Bloomberg:
Trade Deficit in U.S. Increases by Most Since 1999 - Reuters:
Consumer sentiment falls, imports climb - Money Morning:
U.S. and China Seek Middle Ground on Currency Dispute Ahead of Obama Visit
