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Posted at 11:32 AM ET, 12/10/2010

U.S. trade gap narrows on jump in exports

By Howard Schneider

The U.S. trade deficit narrowed sharply in October as the value of exports surged and imports dipped after a drop in oil. The 13.2 percent decrease put the trade gap at its lowest level in nine months.

While the jump in the value of exports was broad, including all major categories of goods and services, analysts cautioned that the outcome might be short-lived: Oil imports are likely to rebound, and, excluding oil, imports of goods and services increased.

The numbers added to a run of news, including the recent tax deal with Republicans announced by the Obama administration, that has prompted forecasters to boost their estimates of U.S. economic performance for the last part of this year and into 2011. The tax package on its own "injects meaningful extra stimulus into the economy," said Nigel Gault, chief U.S. economist for the IHS Global Insight consulting firm, who raised his projection for growth next year from 2.4 percent to three percent.

Trade deficits are considered a burden on a country's economic performance. But the October shortfall of $38.7 billion, down from $44.6 billion the month before, was less than expected.

For much of the year trade was "a big drag on overall growth...but, based on this report, it will add to growth...possibly quite substantially," for the rest of the year, consulting firm Capital Economics said in a report. Economists for PNC Bank said in a research note that the narrowing of the trade deficit, if sustained for the rest of the year, would add half a percentage point or more to U.S. economic growth.

Notably, the U.S. trade deficit with China narrowed from a recent high of $27.8 billion to $25.5 billion.

By Howard Schneider  | December 10, 2010; 11:32 AM ET
Categories:  Trade, U.S. Economy  
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This morning investors were surprised to see a narrowing US trade deficit for October. Exports are at their highest level in two years – mostly on the back of a declining US Dollar. How does this work? Our dollar is weaker, so our goods are cheaper for outsiders.

Posted by: Anonymous | December 10, 2010 4:25 PM | Report abuse

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