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Trade deficit shrinks 10.8% to $70.4 billion in August

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Exports increase 2.0% to record high; imports fall 0.9%

By Lucia Mutikani

WASHINGTON, Oct 8 (Reuters) - The U.S. trade deficit

narrowed sharply in August as exports increased to a record

high, suggesting that trade could have little or no impact on

economic growth in the third quarter.

The smaller-than-expected trade gap reported by the Commerce

Department on Tuesday added to data on the labor market and

consumer spending in suggesting that the economy remained on

solid footing last quarter.

The economy's strength likely has no impact on expectations

that the Federal Reserve will cut interest rates again next

month. It, however, reinforced views that the U.S. central bank

did not need to pursue another half-percentage point rate

reduction.

"This report says that net trade supports GDP growth in

August," said Carl Weinberg, chief economist at High Frequency

Economics. "Putting together July and August figures suggests

that net trade is flat so far in third quarter, making no

significant addition or subtraction to GDP growth so far."

The trade gap contracted 10.8% to $70.4 billion, the

smallest in five months, from a revised $78.9 billion in July,

the Commerce Department's Bureau of Economic Analysis said.

Economists polled by Reuters had forecast the trade deficit

would narrow to $70.6 billion from the previously reported $78.8

billion in July.

Exports increased 2.0% to a record $271.8 billion. Goods

exports surged 2.5% to $179.4 billion, the highest level since

September 2022. They were boosted by a $1.7 billion rise in

capital goods to a record high, mostly reflecting

telecommunications equipment, civilian aircraft, computer

accessories as well as other industrial machinery.

But exports of semiconductors fell.

Consumer goods exports increased $1.0 billion, lifted by

pharmaceutical preparations. Exports of industrial supplies and

materials increased as a $1.1 billion drop in crude oil was more

than offset by a $1.5 billion rise in nonmonetary gold.

Automotive vehicles, parts and engines increased, driven by

passenger car exports. Non petroleum exports were the highest on

record as were those of other goods.

Exports of services increased $0.9 billion to an all-time

high of $92.3 billion amid rises in travel as well as government

goods and services. But exports of transport services fell.

Imports decreased 0.9% to $342.2 billion. Goods imports

dropped 1.4% to $274.3 billion, pulled down by a $3.9 billion

decline in industrial supplies and materials as well as a $1.2

billion decrease in nonmonetary gold.

Crude oil imports fell $1.0 billion. Motor vehicles, parts

and engines imports decreased $1.3 billion, weighed down by

passenger cars. But imports of other goods were the highest

since December 2021. Goods imports had surged in the prior

months, likely as business rushed to bring in shipments in

anticipation of higher tariffs as well as a strike by dock

workers last week, which lasted only three days.

Imports of services increased $0.7 billion to an all-time

high of $67.9 billion amid gains in travel, charges for the use

of intellectual property. But imports of transport services

declined.

When adjusted for inflation, the goods trade deficit

declined 8.9% to $88.6 billion. The average of the so-called

real goods trade deficit for July and August roughly equals the

average for the second quarter.

Trade has subtracted from gross domestic product for two

straight quarters. Growth estimates for the third quarter are

currently as high as a 3.2% annualized rate. The economy grew at

a 3.0% pace in the April-June quarter.