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US trade deficit smallest in five months

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US services sector growth edged ahead during August from July to its highest level since May, signaling the United States was on track for solid third-quarter expansion, an industry report showed on Thursday.

[WASHINGTON] The US trade deficit fell in July to its lowest level in five months as exports rose, signaling underlying strength in the economy amid concerns about a global growth slowdown.

The Commerce Department said on Thursday the trade gap narrowed 7.4 per cent to US$41.9 billion, the smallest since February. June's trade deficit was revised to US$45.2 billion from the previously reported US$43.8 billion.

Economists had forecast the trade gap shrinking to US$42.4 billion. When adjusted for inflation, the deficit fell to US$56.2 billion in July from US$59.0 billion in the prior month.

The smaller deficit implied a modest contribution to gross domestic product from trade early in the third quarter. Trade contributed 0.3 per centage point to the economy's 3.7 per cent annualized growth rate in the second quarter.

Data ranging from consumer spending to employment and housing have suggested the economy retained much of its momentum from the second quarter and was on solid footing when global financial markets were rocked by turbulence triggered by worries over China's economy.

In July, exports increased 0.4 per cent to US$188.5 billion. While that was the first increase since April, exports remain constrained by a strong dollar. The dollar has gained 16.8 per cent against the currencies of the United States' main trading partners since June 2014.

There were increases in exports of food, industrial supplies and materials, and capital goods in July. Automobile exports also rose.

Imports fell 1.1 per cent to US$230.4 billion. However, automobile imports were the highest on record. Imports of consumer goods fell in July.

Exports to China fell 1.9 per cent and imports from that country dipped 0.2 per cent. That left the politically sensitive US-China trade deficit at US$31.6 billion, up 0.4 per cent from June. The trade deficit with China will be closely watched in the coming months after that country devalued its currency in August.

Exports to Canada fell 8.3 per cent in July and could come under more pressure after the Canadian economy slipped into recession in the second quarter. Exports to recession-hit Brazil were the lowest since February 2010.

Exports to the European Union fell 5.3 per cent.