Economic Data Suggest Recovery Is on Track

The U.S. trade deficit narrowed unexpectedly in August as imports dropped sharply, and wholesale prices were tame last month, according to two reports released Friday that suggested the economy was gaining steam with little risk of inflation.

The trade gap shrank for the fifth consecutive month in August as auto imports fell to their lowest level in 20 months, the Commerce Department said in a report that led economists to boost their forecasts of third-quarter growth.

The shortfall in trade came in at $39.2 billion, down from a revised tally of $40 billion in July and the lowest level since February. Analysts had expected it to grow.

U.S. imports slid $3.1 billion to $122.9 billion, led by a $2.3-billion drop in car and part imports. The decline more than offset a $2.3-billion drop in exports to $83.7 billion.

Economists said the steep import decline suggested that U.S. producers had benefited more from a pickup in consumer spending than they had believed.

Some analysts said that meant the pace of economic recovery might have quickened to as much as a 5.5% annual rate in the third quarter, which would be the fastest since the end of 1999.

The latest survey from the closely watched Blue Chip newsletter out Friday showed economists already had looked for growth of a brisk 4.9% annual rate in the quarter.

Though some economists said a drop in the value of the U.S. dollar might be narrowing the trade gap, others cautioned that the export decline signaled a weak global economy.

Separately, the Labor Department said the producer price index for finished goods, which measures prices paid to farms, factories and refineries, rose 0.3% in September.

Wall Street economists had expected the price gauge to hold steady, but the culprit behind the increase was a 1.2% jump in food prices. That gain reflected a more than 20% rise in the cost of vegetables.

Stripping out the food price advance and a 0.1% increase in energy costs, wholesale prices were unchanged last month. Private economists had expected the so-called core producer price index to edge up 0.1%.