U.S. Trade Deficit Narrowed on Drop in Fuel Imports

The U.S. trade deficit narrowed in August as the retreat in oil prices cut the import bill. The gap shrank to $59.1 billion from July's $61.3 billion

The deepening financial crisis is causing American consumers and businesses to retrench, signaling that demand for all products, including imports, will weaken further. At the same time, slowing economies overseas also threaten U.S. exports, making it harder to sustain an improvement in the trade gap.

Trade has been one of the few bright spots in the U.S. economy over the past year. A narrower gap in the second quarter, reflecting record exports and falling imports, contributed the most to growth in almost three decades. Without the help, the economy would have contracted.

The pillars supporting export gains -- growing economies overseas and a drop in the value of the dollar -- are starting to crumble. The euro-zone economy contracted in the second quarter for the first time since the introduction of the currency, and Japan also shrank.

Advanced economies next year will grow 0.5 percent, the slowest pace since 1982, the International Monetary Fund forecast this week. Its global growth estimate for 2009 was scaled back to 3 percent, a level the fund has called the dividing line between a global recession and expansion.

Since reaching a 12-year low in April, the dollar has rallied 12 percent against a basket of currencies from the U.S.'s biggest trading partners. A lower dollar made American-made goods more competitive in global markets. Still, it may take several years for the recent appreciation to affect exports.

U.S. Trade Deficit Narrowed on Drop in Fuel Imports

TradingEconomics.com, Bloomberg.com
10/10/2008 9:38:33 AM