Trade Deficit Probably Shrank in September as Lower Dollar Helped Exports

Trade Deficit Probably Shrank in September as Lower Dollar Helped Exports

Nov. 5 (Bloomberg) -- John Silvia, chief economist at Wells Fargo Securities LLC, talks about the October U.S. employment report released today and the outlook for the economy. Payrolls climbed 151,000, exceeding all estimates in a Bloomberg News survey of economists and following a revised 41,000 drop the prior month that was smaller than initially estimated, Labor Department figures showed. The jobless rate held at 9.6 percent. Silvia speaks with Margaret Brennan on Bloomberg Television's "InBusiness." (Source: Bloomberg)
The trade deficit probably narrowed in September as a weaker dollar boosted U.S. exports, economists said before a report this week.

The gap shrank to $45 billion from $46.3 billion the prior month, according to the median of 57 estimates in a Bloomberg News survey ahead of Commerce Department figures Nov. 10. Another report may show consumer confidence climbed in November.

A flagging dollar that is making American goods cheaper overseas and a growing global economy mean manufacturers like Cummins Inc. will see international sales climb. Foreign products, in turn, are becoming more expensive for U.S. buyers, signaling the trade deficit will keep decreasing and contribute to the recovery for the first time in a year.

“U.S. exports are finding a market,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia. “We expect the trade gap to narrow into the fourth quarter and provide a little tail wind for economic growth.”

The deficit in August widened as growing U.S. demand for foreign automobiles and capital equipment outpaced gains in exports, the Commerce Department said last month.

After reaching a one-year high on June 7, the dollar weakened 7.5 percent through the end of October against a trade- weighted basket of currencies.

The Standard & Poor’s 500 Index gained 3.6 percent last week as the Federal Reserve announced plans to buy $600 billion in bonds and elections produced a divided Congress that’s unlikely to pass further business reforms.

More Hiring

Last week also brought better news on the jobs front. A Nov. 5 Labor Department report showed employment grew by 151,000 in October, the first gain since May. The jobless rate held at 9.6 percent, where it’s been since August.

Columbus, Indiana-based Cummins, a maker of diesel-truck engines, is among companies seeing a pickup overseas.

“Our performance this year has clearly been better than we had anticipated,” Thomas Linebarger, the company’s chief operating officer said during a teleconference with analysts on Oct. 26. “Our business, especially in the emerging markets, has come back much faster than we had forecast,” he said. “We expect continued growth in our markets in China, India and Brazil in 2011.”

Manufacturing unexpectedly expanded at a faster pace in October as production and new orders picked up, a report from the Institute for Supply Management showed last week. At the same time, the group’s services index, which covers about 90 percent of the economy, increased at the quickest pace in three months.

Confidence Improving

Consumer confidence may also be increasing, economists said ahead of a Nov. 12 report. The Thomson Reuters/University of Michigan’s preliminary household sentiment index rose to 69 in November, the highest level since June, from 67.7 at the end of October, according to the Bloomberg survey median. The gauge averaged 89 in the five years leading up to the recession that began in December 2007.

The improving numbers have come too late to prevent Democrats from losing the House of Representatives in last week’s elections. The economy was the top issue in the Nov. 2 midterm vote in which Republicans won a majority of seats in the House and narrowed the Democratic majority in the Senate.

A Labor Department report on Nov. 10 may help explain some of the discontent. The number of Americans applying for jobless benefits last week fell to 450,000 from 457,000 the previous week, according to the survey median. The reading indicates firings remain elevated and points to a labor market struggling to improve.


Bloomberg Survey

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Release Period Prior Median
Indicator Date Value Forecast
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Whlsale Inv. MOM% 11/9 Sept. 0.8% 0.7%
Trade Balance $ Blns 11/10 Sept. -46.3 -45.0
Import Prices MOM% 11/10 Oct. -0.3% 1.2%
Initial Claims ,000’s 11/10 6-Nov 457 450
Federal Budget $ Blns 11/10 Oct. -176.4 -149.0
U of Mich Conf. Index 11/12 Nov. P 67.7 69.0
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source: bloomberg.com