September trade gap widened 18.2%

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By David M. Dickson

The U.S. trade deficit expanded in September by the most in a decade as rising imports of petroleum, autos and manufactured goods from China wiped out an otherwise impressive gain in exports, which reached their highest level since December.

The trade gap jumped 18.2 percent, widening from $30.8 billion in August to $36.5 billion in September, the Commerce Department reported Friday. It was the largest monthly imbalance since January but it remains well below the peak deficit of $65.9 billion in July 2008, when oil prices reached record levels just before trade flows collapsed around the world.

Some economists hailed September's significant expansion of overall U.S. trade activity, including both imports and exports, as further evidence that the deepest U.S. and global downturns since the Great Depression have turned the corner.

"The report was stunning in its description of an economy showing strong signs of recovery across the board," said Christopher Cornell of Moody's Economy.com.

"Exports have risen for five consecutive months, which reflects stronger growth in the rest of the world," said Jay H. Bryson, global economist for Wells Fargo.

Exports in September were up 2.9 percent to $131.9 billion, while imports climbed 5.8 percent to $168.4 billion.

"The trade figures signal a strong rebound in global trade," said Nigel Gault, chief U.S. economist for IHS Global Insight. "However, the widening deficit is a warning that as U.S. domestic demand increases, imports will bounce more than exports. That means that the trade deficit will keep widening, and that trade will be a drag on growth."

As a result of September's unexpectedly big increase in the trade deficit, Mr. Gault said the annual rate of economic growth for the third quarter will likely be revised downward from the initially reported 3.5 percent to 2.9 percent.

More than two-thirds of the increased deficit resulted from a $4 billion jump in the nation's monthly petroleum deficit, which reached $20.5 billion. Not only did the average price of imported crude oil increase from $64.75 per barrel to $68.17, but imports of petroleum rose from 10.9 million barrels per day in August to 12.1 million barrels per day in September.

"This month's trade report supports the hypothesis that rising oil prices are tied to increasing demand for crude oil from a recovering global economy," Mr. Cornell said.

Oil prices increased to $80 per barrel in October, signaling another big petroleum-related rise in the trade deficit ahead. Oil prices peaked near $150 per barrel in July 2008.

Auto imports increased by $1.7 billion in September as dealers restocked their inventories after the federal "clash for clunkers" program.

The monthly trade deficit with China, where President Obama will arrive Sunday for several days of meetings, increased by 9.2 percent, or nearly $2 billion, reaching $22.1 billion in September and $165.8 billion for the first nine months of 2009. The trade deficit with China is on track to exceed $200 billion this year for the fifth year in a row.

The September trade deficit with Japan, where Mr. Obama arrived Friday in his first stop on his Asian tour, declined slightly to $4.1 billion. The gap with Japan trails only China and Mexico ($4.6 billion). The merchandise trade deficit with South Korea, where Mr. Obama will visit next week, nearly doubled to $770 million in September.

"If President Obama really wants to create more good American jobs, he doesn't have to wait for the [jobs] summit he's planned upon his return from Asia," said Alan Tonelson of the U.S. Business and Industry Council, whose members mainly include family owned domestic manufacturing companies. "He can tell the Chinese and other regional leaders that he'll be acting unilaterally to slash America's massive job-killing Asia trade deficits with strong measures to combat the region's pervasive trade cheating."

Due largely to rising unemployment, which jumped to 10.2 percent in October, consumer confidence unexpectedly declined in early November, according to the Reuters/University of Michigan preliminary index of consumer sentiment. The index fell from 70.6 to 66, returning to its July and August level.