Trade Gap Grows to $66 Billion as Exports Fall, Oil Prices Rise

The U.S. trade deficit swelled to a record $66.1 billion in September after Hurricane Katrina pushed oil prices to record highs and exports fell, causing the largest monthly increase in the deficit in more than a year.

But in early November, lower gasoline prices and an improving jobs market helped American consumers overcome some of their gloom after the hurricanes that hit the Gulf Coast in late August and September.

The Treasury Department also reported that the federal budget deficit shrank more than expected in October, suggesting that government coffers were not hit as hard as some had feared by relief efforts after the storms.

The Commerce Department’s report on the international trade balance showed the trade gap beat the previous record of $60.4 billion set in February and outstripped economists’ forecasts of $61 billion.

The deficit widened 11.4% from August, the largest monthly jump since June 2004, and economists said the surprisingly large increase could act as a temporary drag on overall economic growth.

However, much of the increase was attributable to a labor strike at aircraft maker Boeing Co. that slashed commercial aircraft exports, which fell by $2.4 billion to $925 million.

“The trade deficit widened to a record in September, as expected. But it wasn’t the oil story we were all looking for,” said Chris Low, chief economist at FTN Financial.

“Instead, it boils down to Boeing and Airbus, with the European firm holding the cards this time around.”

The politically sensitive trade deficit with China hit an all-time high of $20.1 billion in September, as imports from that country rose to a record $23.3 billion. U.S. politicians and business lobby groups have been accusing China of gaining a trade advantage by keeping its currency artificially weak.

China earlier reported a record trade surplus of $12 billion in October but affirmed its policy of keeping the yuan steady, despite Washington’s calls for more currency flexibility.

U.S. oil prices hit a record $70.85 per barrel after Katrina, which slammed into the Gulf Coast on Aug. 29, shuttering much of the region’s oil producing and refining capacity.

Gasoline prices have since fallen, and by early November the drop was big enough to cheer up consumers.

The University of Michigan said its preliminary index of consumer sentiment for November rose to 79.9 from October’s 74.2. Wall Street economists had forecast a rise to 76.

Another report showed that overall U.S. import prices unexpectedly fell 0.3% in October, their first decline since May, as petroleum costs eased, which could relieve some pressure on the Federal Reserve to keep raising interest rates.

Despite the disruption to U.S. exports and Gulf Coast ports caused by Katrina and later Hurricane Rita, overall imports jumped 2.4% in September to a all-time high of $171.3 billion, led by the record value of petroleum imports.

U.S. exports tumbled 2.6% to $105.2 billion, the biggest drop since the September 2001 terrorist attacks.

The federal budget deficit shrank in October to $47.23 billion, down from $57.3 billion in October 2004, thanks to strong receipts, the Treasury Department said.