US goods trade deficit shrinks sharply as imports slump

America's trade deficit in goods with the rest of the world narrowed sharply during the preceding month, but only because of a big drop in purchases from overseas.

According to a preliminary reading from the Department of Commerce, America's shortfall in its foreign trade on goods shrank by 5.7% in October to reach $66.5bn (consensus: -$71.3bn).

Imports were especially weak, falling at a month-on-month pace of 2.4% to reach $201.8bn while exports fell by 0.7% against September to $135.3bn.

Separately, Commerce reported that wholesale inventories edged up by 0.2% over the month to reach $676.1bn, while stockpiles in retailing increased by 0.3% to $668.7bn.

Ian Shepherdson at Pantheon Macroeconomics said the bulk of the drop in imports was seen in those of automobiles and other consumer goods, with the former possibly a distortion linked to the recent strikes at GM.

Likewise, imports had fallen by 9.0% since August, possibly in response to the new tariffs on many consumer goods items imported from China, although the economist said that "this too will reverse, at least in part, soon."

"An improvement in the trade deficit thanks to falling imports, signalling soft domestic demand, is rarely as welcome as one driven by rising exports. Either way, though, falling trade deficit boosts GDP growth, other things equal, so the immediate consequence of this report will be to lift estimates of Q4 GDP growth," said Shepherdson.

"The impact will depend on the extent to which forecasters assume mean reversion or a correction in Nov/Dec, but you should expect to see forecasts rising. We’re sticking to our 1% estimate."