US trade deficit declined sharply in October to reach a nine-month low as exports saw upward growth, the US commerce department said on Friday.
Goods and services trade deficit of the US was $38.7 billion in October, down from revised deficit of $44.6 billion in September.
Markets had expected the US trade deficit to reduce slightly to $44.4 billion in October.
“The sharp decline in the US trade deficit to a nine-month low suggests that our 2.5% q/q Ann. forecast for fourth-quarter GDP growth may need to be revised higher,” said Paul Ashworth, an economist with Capital Economics.
While the exports from the US increased by $4.9 billion to $158.7 billion in October month-on-month, imports fell by $0.9 billion to $197.4 billion.
“Net external demand was a big drag on overall growth in the second and third quarters but, based on this report, it will add to growth in the fourth, possibly quite substantially,” said Ashworth.
However, the US trade deficit in October was $6.4 billion higher compared with the same month last year.
A large part of increase in exports for the month of October came from $2.6 billion rise in exports of industrial supplies and materials.
Though the overall imports went down in October, consumer goods segment recorded an increase of $1.3 billion in imports.
“The decline in imports was principally due to a big drop in the quantity of oil being imported. It dropped to 330 million barrels in October, from 365 the month before and an average of about 390. So expect some rebound in the cost of imported oil in November, particularly since the price per barrel has been rising as well,” said Ashworth.
Also, the US trade deficit with China fell to $25.5 billion in October from $27.8 billion in September, and deficit with OPEC was $5.7 billion, down from $8.9 billion.
On the other hand, China’s trade surplus rose in November raising fresh fears about renewed criticism from the US and Europe over Beijing’s currency policy.
Export from China rose 34.9 percent to $153.3 billion in November year-on-year and imports increased 38 percent to $130.4 billion, leaving a trade balance of $22.9 billion in November, the Chinese customs bureau said on Friday.
The new trade surplus is likely to add to the criticism of China’s exchange rate policy. The US and Europe say that Beijing is keeping the yuan undervalued to boost exports. But China's yuan remained unchanged rising from 6.69 to 6.67 against the dollar during November.
“In sum, a very positive report but it doesn't change our view that the trade deficit will trend wider over the next year or two, increasing political tensions over trade in tandem,” Ashworth added.