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Dollar propels exports to record

Times Staff Writer

Fueled by the weak dollar, U.S. exports have surged to their highest level ever, narrowing the trade gap significantly and boosting hopes that the economy will post even higher growth before slowing in the coming months.

Exports hit a record $140.1 billion in September, the Commerce Department reported Friday, reducing the trade deficit to $56.5 billion -- the lowest level since May 2005.

“Exports have been sent into overdrive by the declining dollar,” said Nigel Gault, an economist with Global Insight, an economic consulting firm in Lexington, Mass. “This year is going to be the first one for some time when we actually have a positive contribution to economic growth from trade.”

The cheaper dollar makes U.S. exports less expensive for foreign buyers, whose economies are expanding and generating demand for American products and services.

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The trade gap with China, however, widened in September to $23.8 billion -- the second-largest deficit ever. Observers said that despite concerns about product safety, retailers were stocking up on Chinese goods in advance of the holiday shopping season.

Overall, September exports were up 13.6% from a year earlier, while imports were up 4.9%.

Gault estimated that exports alone accounted for at least 1% of economic growth in the third quarter, as measured by the gross domestic product.

GDP, a widely followed barometer of the economy’s strength, is the value of all goods and services produced in the country. Most economists say that the Commerce Department’s estimate of 3.9% GDP growth for the third quarter will be revised upward soon, possibly topping 5%.

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“That’s huge,” Gault said. “It’s hard for me to believe that growth is really that strong.”

One benefit of the export surge, economists said, is that a strong third quarter would probably soften the effect of the coming slowdown caused by the skid in housing prices and decline in residential construction.

“Exports are rising at a faster rate than imports and we are optimistic that this trend will at least partially offset the collapse of housing prices,” said Hank Cox, spokesman for the National Assn. of Manufacturers.

However, most economists predict that consumer spending will put the brakes on that growth in the fourth quarter, in part because of fallout from the housing market slowdown and the increase in oil prices.

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“The cost of oil is going to mitigate the positive trend somewhat, but it’s too early to tell how much,” Cox said.

Consumer confidence -- a key indicator of spending -- dropped sharply in early November to its lowest level in two years, according to surveys by the University of Michigan’s Institute for Social Research. The gauge stood at 80.9 in October but fell to 75.0 in November -- the lowest level since Hurricane Katrina in 2005.

“Higher oil prices pose a double negative: They will lead to a spike up in headline inflation and will negatively affect consumer purchasing power and squeeze corporate profit margins,” said Peter Kretzmer, an economist with the Bank of America. “In coming months, the higher oil prices will filter into higher retail prices of gasoline and home heating fuel . . . and slow consumer spending.”

The value of the dollar hit new lows this week against the euro and other currencies. That has caused anxiety in the financial markets, which fear that the U.S. currency could become so devalued that foreign governments could begin to dump their dollar-denominated securities.

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Treasury Secretary Henry M. Paulson Jr. -- who has previously shown little inclination to intervene in the currency markets -- said he was not concerned that the dollar could become so cheap that investors would shun it.

“The dollar has been the world’s reserve currency since World War II and there is a reason. We are the biggest economy in the world. We are as open as any economy to investment,” Paulson told reporters.

Paulson and other U.S. officials have signaled that they will continue to let currency markets set the price of the dollar. That is good news for U.S. exporters and bad news for importers.

“The dollar is going to be weak, it’s going to go weaker and it’s going to stay weaker for some time,” Gault said.

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maura.reynolds@latimes.com

The Associated Press was used in compiling this report.


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