US trade gap narrows after surge in exports

The outlook for US economic output was boosted yesterday by figures that showed its trade deficit fell by substantially more than than-expected in October, driven by a weaker dollar and a surge in exports.

Weaker domestic demand for imports of industrial, petroleum and food products also contributed to the trade gap falling by 13.2 per cent to $38.7bn, the lowest level since January and ahead of a forecast deficit of $43.6bn.

The October data followed a revised deficit estimate of $44.6bn for September. The trade figures suggest that US industry is meeting an increasing amount of domestic demand, as well as growing exports.

This led economists to upgrade their fourth-quarter growth forecasts for the US economy to 3 per cent or above. "This suggests the economy is accelerating," Neil Dutta, an economist at Bank of America Merril Lynch, said.

The US delivered record exports to countries, including Mexico and China, of $158.7bn in October, while exports to Japan and the European Union also picked up. In the opposite direction, US imports slipped by 0.5 per cent to $197.4bn, partly down to the weakest demand for petroleum imports since last November.

However, on a yearly basis, the deficit has widened in 2010 and could smash the $500bn barrier when final figures are released. A key driver is the 20.3 per cent rise in the US trade deficit with China to $226.8bn over the first 10 months of this year.

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