US trade deficit narrows as imports fall

Yesterday's report on the US trade deficit was reported by MarketWatch:

Boosted by a weaker dollar, the U.S. trade deficit narrowed to $57.6 billion in August from $59 billion in July, the Commerce Department reported Thursday.

Exports rose 0.4% to a record $138.3 billion, while imports fell 0.4% to $195.9 billion...

"For the first time in all my years sifting through these data (going back to 1994), a weak dollar is making a major difference for trade flows," wrote Stephen Stanley, chief economist for RBS Greenwich Capital.

But there is more to it than just the weaker US dollar.

The report showed the two sides of the economy: Weaker domestic demand coupled with strong global growth.

"While the shrinking of the trade deficit (and current account) is good news, if the shrinking is driven by weaker business activity, it won't be worth the cheering," wrote Steven Wieting, economist for Citigroup Global Markets.

"The notable part of the report is that the 0.4% decline in imports (biggest in six months) took place despite a 7% increase in petroleum imports (biggest in five months), thereby reflecting a prolonged decline in demand and the overall slowdown in the U.S. economy," wrote Ashraf Laidi, chief currency analyst for CMC Markets.

Indeed, the report on import prices also released yesterday suggests that the weaker US dollar is not translating into higher import prices outside of energy. Again from MarketWatch:

Prices of goods imported into the U.S. rose by 1% in September, rising on a big jump in prices of imported petroleum, the Labor Department reported Thursday.

The rise in the September import price index follows a drop of 0.3% in August...

Taking out petroleum prices, however, import prices fell 0.2% in September. Excluding all fuels, import prices fell 0.1% in September.

But export prices are rising.

The prices of most U.S. exports rose in September according to the report...

Year over year, export prices are up 4.5%.

While the US trade deficit has been narrowing, China's trade surplus has stayed persistently high. Bloomberg reports China's September trade data.

China's trade surplus rose 56 percent in September to $23.9 billion, adding pressure for higher borrowing costs and a stronger yuan to prevent inflows of export cash from stoking inflation.

The gap widened from $15.3 billion a year earlier, the customs bureau said on its Web site, after gaining 33 percent in August...

Exports rose 22.8 percent in September from a year earlier and imports climbed 16.1 percent, the smallest gain in three months.