U.S. Trade Deficit Shrinks to $38 Billion

The U.S. trade deficit narrowed unexpectedly in November while wholesale prices outside of food and energy posted a surprise drop last month, government reports showed Wednesday.

The trade gap shrank to $38 billion from $41.6 billion in October, as civilian aircraft sales pushed exports to their highest level in three years, the Commerce Department said.

It was the smallest trade gap in 13 months.

In a separate report, the Labor Department said the producer price index, which measures prices paid to farms, factories and refineries, rose 0.3% last month after a 0.3% drop in November.

But stripping out volatile food and energy prices, the index fell 0.1% for the second straight month, offering a sign that inflation pressures are under wraps.

In a third report, the Federal Reserve said in its latest “beige book” survey of regional economic conditions that the U.S. economy strengthened from late November to early this year as orders increased at factories and companies fired fewer workers. The San Francisco Fed district reported an economy “expanding soundly,” with continued strong real estate activity.

Analysts said the trade gap, which came in well below the $42 billion that markets had been expecting, implied a stronger fourth-quarter economic performance than had been estimated.

Some said the economy, which rocketed at a near 20-year best rate of 8.2% in the third quarter, may have expanded at a rapid 5% annual clip at year’s end.

As for wholesale prices, economists had looked for a 0.2% rise overall, but the drop in the so-called core rate came as a surprise.

“The dip by the core PPI brings attention to how inflation is not an issue in the credit market and it’s the least of the Federal Reserve’s worries,” said John Lonski, chief economist at Moody’s Investors Service in New York.

The Fed, which has held overnight interest rates at a 45-year low of 1% since June, has said low inflation and lots of slack in the economy mean rates probably could stay low for a “considerable period.”

Exports rose 2.9% in November, while imports retreated slightly from October’s record high.

The rise in exports was led by a $1.2-billion jump in civilian aircraft shipments. Exports of other capital goods, such as industrial and aircraft engines, also showed healthy gains.

U.S. exports have risen steadily over the last year, aided by the weaker dollar.

Despite the unexpected narrowing in November, cumulative figures show the trade deficit has already set an annual record. The gap totaled $446.8 billion for the first 11 months of 2003, surpassing the record of $418 billion in 2002.

Energy prices climbed 1.8% last month, their biggest gain since June, as the cost of gasoline jumped 5.1%.

Food prices, which had fallen 0.3% in November, gained 0.2% last month as the cost of vegetables jumped 20.7%. That gain, and a sharp rise in the price of fruit, more than offset plunging beef, veal and pork prices.

For the year as a whole, producer prices rose 4% -- the biggest gain for any calendar year since 1990. But excluding food and energy costs, they rose a mild 1%.