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Author: Lucia Mutikani
WASHINGTON (Reuters) – The U.S. trade deficit narrowed sharply in October as exports rose to record levels, and trade is set to support economic growth this quarter for the first time in more than a year.
The Commerce Department said Tuesday that the trade gap fell 17.6 percent to $ 67.1 billion. This was the largest percentage drop since April 2015. Economists surveyed by Reuters predicted a deficit of $ 66.8 billion.
“The trade deficit is shrinking a lot and pouring even more fuel into the economy’s reservoir, which ensures stronger growth by the end of 2021,” said Christopher Rupkey, chief economist at New York’s FWDBONDS.
Exports accelerated by 8.1% to an all-time high of $ 223.6 billion. Commodity exports rose by 11.1% to $ 158.7 billion, a record high. Exports of industrial supplies and materials increased by $ 6.4 billion, with shipments of $ 1.2 billion.
Exports of capital goods rose $ 3.1 billion, driven by other industrial machinery and civilian aircraft. Food exports rose $ 2.1 billion, and soybeans rose $ 1.8 billion.
Exports of consumer goods rose $ 1.6 billion, driven by the rise in diamond shipments and the rise in shipments of motor vehicles, parts and engines. The nation exported more services, rising $ 1 billion to $ 64.9 billion. This reflected an increase in fees for travel abroad, other business services and the use of intellectual property.
The rise in exports led to a record 0.9% increase in imports to $ 290.7 billion, a record high. Imports of goods rose 0.7% to an all-time high of $ 242,700 billion. The rise was in motor vehicles, parts and engines, and rose by $ 1.5 billion. There were also gains in imports of consumer goods, including cell phones and other household goods.
Imports of industrial supplies and materials fell as a result of imports of capital goods and declines in semiconductors and civilian aircraft.
PROMOTE GROWTH
Adjusted for inflation, the goods deficit narrowed to $ 13.5 trillion in October to $ 97.6 trillion. That was the lowest real-world deficit since last December. If trade in goods continues to decline, trade could contribute to gross domestic product this quarter. The trade gap has seen GDP growth for five consecutive quarters.
“We expect stronger export growth and moderation in import volumes to maintain a stable deficit next year after reaching record highs in 2021,” said Mahir Rasheed, an economist at Oxford Economics in New York. “However, the Omicron variant is a key risk that threatens to distort trade flows by slowing global recovery in early 2022.”
The economy is picking up speed in the third quarter due to shortages and the outbreak of COVID-19 infections, driven by the Delta variant. Coronavirus-induced supply chain shortages are exacerbating price pressures.
There are signs that inflation may be above the Federal Reserve’s 2% target for a while, even as competing workers raise wages.
A separate report from the Department of Labor on Tuesday showed that unit labor costs, the price of labor per unit of production, rose more than initially thought in the third quarter. Labor costs accelerated at a 9.6% annual rate in the last quarter compared to the 8.3% rate reported in November.
(Chart: Historical decline in productivity, https://graphics.reuters.com/USA-ECONOMY/RECESSIONTEMPLATE/gkplgldylvb/chart_eikon.jpg)
They rose by 5.9% in the April-June quarter. Labor costs rose by 6.3% year-on-year compared to the previously announced 4.8% rate. Economists forecast unit labor costs to rise at an unchanged rate of 8.3% in the previous quarter.
Hourly compensation rose by 3.9% in the third quarter, compared to 2.9% as previously reported.
The rise in labor costs was detrimental to employee productivity, which fell at a revised 5.2% rate in the last quarter. Productivity was reported to have fallen by 5.0%. It grew at a rate of 2.4% in the April-June quarter.
Compared to the third quarter of 2020, productivity fell by 0.6%. It was previously reported to have fallen by 0.5%. Working hours rose by 7.4% in the last quarter compared to the previously estimated rate of 7.0.
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