Trade Gap Shrinks 2.4%; Weak Dollar Is Wild Card

October 12, 2007 Trade Gap Shrinks 2.4%; Weak Dollar Is Wild Card By MICHAEL M. GRYNBAUM Export sales in August rose to a record and the monthly trade deficit fell to its lowest level since January, the Commerce Department said yesterday. The report suggested a rosier outlook for third-quarter growth, but analysts warned that a weakening dollar could drag down domestic demand in the months ahead. The gap between what Americans import and export shrank 2.4 percent in August, to nearly $57.6 billion, an improvement over analysts’ expectations. The July deficit was revised lower, to $59 billion, a drop of about $250 million, the department said. A weakening dollar, which reduces the monetary value of exports, had the counterbalancing effect of contributing to the increase in exports — good news for American producers. Export sales rose 0.4 percent, to $138.3 billion, in August, led by strong business in food and industrial supplies. Total export sales have risen 12.8 percent since August 2006. Imports fell 0.4 percent, to $195.9 billion, as pharmaceutical and automotive imports dropped. But Americans purchased more foreign clothing and technology products, like semiconductors. “Short term, it’s good news,” said Gregory Miller, chief economist at SunTrust Banks. “We have an improving trade deficit, and exports continue to provide underlying strength for economic growth.” But in the long term, Mr. Miller said, strong export sales could suggest that producers are selling products overseas because domestic sales are weakening. “Our underlying domestic growth is weakening relative to overseas growth,” he said. Still, some economists said the report had positive signs for the domestic economy. “Goods produced for export are just as good from the point of view of production rates and employment as goods produced for domestic consumption and investment,” said Peter Kretzmer, a senior economist with Bank of America. He noted that domestic consumer spending had not slowed, suggesting that Americans were opting for more domestic products at the expense of imported goods and services — which, in some cases, were becoming slightly more expensive. A separate report from the Labor Department, also released yesterday, showed that import prices rose 1 percent in September, led by a 5.4 percent jump in petroleum costs and modest gains in industrial supplies and food imports. Import prices are up 5.2 percent from a year earlier. But the price of agricultural and other food exports rose, and demand for exports appeared strong as foreign buyers took advantage of the weakened dollar. Export prices ticked up 0.3 percent in September, keeping pace with a 4.5 percent rise over the last 12 months. Over all, though, nonenergy import prices fell in September, surprising at least one specialist. “That to me is amazing,” said Brian Bethune, an economist at Global Insight, a research firm in Lexington, Mass. “If you look at the lower U.S. currency, that would tend to put upward pressure on import prices.” But the promising trade report “doesn’t diminish the fact that the domestic economy is fairly weak over all,” Mr. Bethune said. “I don’t think necessarily that we’re out of the woods.” American food exports are up 29 percent from a year earlier. Automotive exports fell 8.4 percent last month, though they remain up 11.3 percent since August 2006. A report yesterday from the Labor Department said that the number of Americans who filed first-time claims for unemployment benefits fell 12,000, or 3.8 percent, in the week ended Saturday. Continuing-claim levels fell by 15,000, or 0.6 percent, for the week ended Sept. 29.