Trade deficit drops sharply in October

A record drop in oil import prices pushed the U.S. trade deficit in October to its lowest level in more than a year, while U.S. exports rose to a new high, a Commerce Department report showed Tuesday.

The trade gap shrank 8.4% in October to $58.9 billion, the biggest drop since December 2001, surprising analysts who had expected a much smaller decline.

The deficit was the smallest since August 2005, the last time it totaled less than $60 billion. However, the annual trade gap could still reach a record $760 billion in 2006.

The smaller-than-expected October shortfall signaled slightly stronger U.S. economic growth in the fourth quarter than previously forecast, a number of analysts said.

Even so, the gross domestic product would probably be only “in the 1% to 2% range,” said Nigel Gault, U.S. economist with Global Insight.

The Institute of Supply Management said in its semiannual forecast Tuesday that it expected stronger growth in the U.S. manufacturing sector in 2007 and only a slight slowdown in growth in the services sector.

Meanwhile, the chief executive officers of major U.S. companies, in a quarterly survey released Tuesday by the Business Roundtable, said they expected economic growth to slow slightly over the next six months.

U.S. imports fell 2.7% during October, the largest decline since December 2001, aided by an 11.3% drop in the price of imported oil to $55.47 per barrel. Oil import volumes also fell for a second consecutive month.

The monthly trade gap with members of the Organization of the Petroleum Exporting Countries shrank 18.3% during October to $7.5 billion.

Lower oil imports also more than offset record imports of consumer goods, food, feeds and beverages and advanced technology products.

Meanwhile, the politically sensitive trade deficit with China swelled to a record $24.4 billion in October, as imports from there surged to $29.3 billion, also a record.

The trade gap with China for the first 10 months of the year totaled $190.6 billion, keeping it on track to easily surpass last year’s record of $202 billion.

“It looks as if our deficit with China will be about $240 billion this year, about a 15% increase,” said Joel Naroff, president of Naroff Economic Advisors.

The galloping trade deficit with China is one of the main reasons for top-level meetings Thursday and Friday in Beijing. Treasury Secretary Henry M. Paulson Jr. is leading a team of Bush administration Cabinet officials and Federal Reserve Chairman Ben S. Bernanke for talks with Chinese officials on trade and economic concerns.

Paulson has warned against expecting quick results from the meeting, but many manufacturers who feel harmed by China’s currency and trade policies are growing impatient.

“Today’s figures should remind Secretary Paulson that major progress in fixing America’s broken China trade policy is needed now,” said Alan Tonelson, research fellow at the U.S. Business and Industry Council.

Overall, U.S. exports increased slightly by 0.2% in October to a record $123.6 billion, led by records in services, capital goods and consumer goods.

Exports have been aided by the dollar’s decline, which has made U.S. products more competitive in world markets.