US trade deficit narrows as exports hit 2.5 year high

July's trade deficit was revised slightly down to US$43.6 billion from the previously reported US$43.7 billion. PHOTO: REUTERS

WASHINGTON (REUTERS) - The US trade deficit fell in August as exports of goods and services rose to the highest level in more than 2-1/2 years, suggesting trade could help to soften the blow on the economy from Hurricanes Harvey and Irma.

The Commerce Department said on Thursday (Oct 5) that the trade gap declined 2.7 per cent to US$42.4 billion (S$57.6 billion). July's trade deficit was revised slightly down to US$43.6 billion from the previously reported US$43.7 billion.

The department said the effects of Harvey and Irma along with Hurricane Maria would be "embedded in source data" for trade, and the impact of the hurricanes will likely be"reflected in subsequent trade reports until normal trade activities resume in affected areas."

Economists polled by Reuters had forecast the trade shortfall narrowing to US$42.7 billion in August. When adjusted for inflation, the trade deficit was little changed at US$61.8 billion. The so-called real trade deficit in August was below the second-quarter average of US$62.4 billion.

While that suggests trade could contribute to gross domestic product in the third quarter, a rise in commodity prices after Harvey disrupted oil and gas operations along the Texas coast could push up the trade deficit in September.

Harvey and Irma, which struck Florida last month, are expected to cut at least six-tenths of a per centage point from economic growth in the third quarter. Trade added two-tenths of a per centage point to the second quarter's 3.1 per cent annualized growth pace.

In August, exports of goods and services increased 0.4 per cent to US$195.3 billion, the highest level since December 2014. Goods exports were the highest since April 2015.

Exports to China increased 8.8 per cent. Imports of goods and services dipped 0.1 per cent to US$237.7 billion in August. Imports of industrial supplies and materials were the lowest since November 2016.

Imports of goods from China increased 5.1 per cent to a record high. The politically sensitive U.S.-China trade deficit rose 4.0 per cent to US$34.9 billion in August, the highest level since September 2015.

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