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Wider US trade deficit, weak exports point to slower growth

[WASHINGTON] The US trade deficit unexpectedly widened in September as exports hit a five-month low, suggesting slowing global demand could undercut economic growth in the final three months of the year.

The Commerce Department said on Tuesday the trade gap increased 7.6 per cent to US$43.03 billion. Economists had forecast the shortfall at US$40.00 billion in September. "The disappointing performance in export activity suggests that the loss of export competitiveness from the strong dollar and the weak global backdrop are becoming a net drag on US economic activity," said Millan Mulraine, deputy chief economist at TD Securities in New York.

The trade deficit was bigger than the US$38.1 billion gap that the government had assumed in its advance gross domestic product estimate for the third quarter published last week.

The weak trade data came on the heels of a report on Monday showing a decline in construction spending in September.

Economists said the two reports combined suggested that the third-quarter 3.5 per cent annual growth pace could be cut by as much as half a per centage point when the government publishes its revisions later this month.

Trade was reported to have contributed 1.32 percentage points to GDP growth.

US financial markets were little moved by the trade data.

In another report, the Commerce Department said orders for factory goods fell for second straight month in September. Relatively firm domestic demand, however, is expected to keep US factories humming.

Exports in September fell 1.5 per cent to US$195.59 billion, the lowest since April, a sign that weakening demand in key markets such as China and the eurozone was starting to weigh.

Exports are likely to weaken further after a survey of US manufacturers published on Monday showed a decline in a gauge of export order growth.

Apart from slowing global demand, export growth is seen crimped by a strong dollar, which so far this year has strengthened by about 4 per cent against the currencies of the country's main trading partners.

The decline in exports in September was broad-based, with the exception of food and beverages, which rose.

Exports to the European Union fell 6.5 per cent in September, while those to China slipped 3.2 per cent. Exports to Japan tumbled 14.7 per cent. There were also declines in exports to Mexico and Brazil.

Overall imports were unchanged in September as petroleum imports hit their lowest level since November 2009. A domestic energy boom has seen the United States reduce its dependence on foreign oil, helping to temper the trade deficit.

Declining crude oil prices, which hit a seven-month low in September, are also helping to put downward pressure on the value of petroleum imports.

Consumer goods imports, however, were the highest on record, as were non-petroleum imports. Economists were disappointed with the stall in imports, but were encouraged by the rise in consumer goods imports as this was a sign domestic demand was holding firmer. "The stronger dollar isn't doing much to spur consumer demand for goods outside of the US borders," said Jennifer Lee, an economist at BMO Capital Markets in Toronto.

Imports from China hit an all-time high, leaving the politically sensitive trade gap at US$35.6 billion, the highest on record. Imports from Canada were the highest since July 2008.