US trade gap shrinks; wholesale prices mostly mild
The U.S. trade gap shrank for the fifth consecutive month in August, as auto imports fell to their lowest level in 20 months, the Commerce Department said in a report that led economists to boost their forecasts of third-quarter growth.
Despite the implications for growth, markets largely shrugged off the trade data and a separate report from the Labor Department that showed wholesale prices unchanged last month outside a spike in food costs.
Many economists said the price report signaled a lack of inflation pressures, which meant the Federal Reserve could keep interest rates at 45-year lows for some time to come.
The trade deficit narrowed to just $39.2 billion from a revised tally of $40.0 billion in July. It was the smallest shortfall since February, a surprise to analysts on Wall Street who had expected the gap to widen.
A large drop in car imports helped fuel a $3.1 billion slide in overall imports, which more than offset a $2.3 billion fall in exports.
Economists said the steep import decline suggested U.S. producers had benefited more from a pick up in consumer spending than previously thought.
Some economists said the pace of recovery may have quickened to a 5.5 percent annual rate or better in the third quarter, which would be the fastest since the end of 1999 and a big step up from a 3.3 percent second-quarter advance.
However, even as growth forecasts were pushed higher, some analysts warned that the fall in exports signaled a weak global economy with less demand for U.S. products.
"Ultimately the trade data is not a favorable sign of activity," Merrill Lynch currency strategist Marcel Kasumovich said.
The politically sensitive bilateral trade deficit with China hit a monthly record of $11.7 billion as imports from the Asian manufacturing giant hit a record at $13.7 billion.
U.S. manufacturers have alleged China has gained an unfair trade advantage by keeping the value of its currency, the yuan, pegged to the dollar. A drop in the value of the dollar, which would normally benefit U.S. producers, has done little to whittle away China's advantage because of the peg, they say.
China's peg not withstanding, some economists said the dollar's drop, which has accelerated in recent weeks, may finally be narrowing the trade gap.
Separately, the Labor Department said the Producer Price Index, which measures prices paid to farms, factories and refineries, rose 0.3 percent in September. Wall Street economists had expected the price gauge to hold steady.
The culprit was a 1.2 percent jump in food prices, a gain that reflected a more than 20 percent rise in the cost of vegetables, which posted their biggest jump since March of last year.
"Vegetable prices go up and down all the time. That's the nature of the industry," said Biz Wallingsford, an analyst at the U.S. Agriculture Department.
Stripping out the food price advance, and a mild 0.1 percent increase in energy costs, wholesale prices were unchanged last month. Private economists had expected the so-called core PPI to edge up 0.1 percent.
The core PPI has risen just 0.1 percent over the last 12 months, which most analysts said showed scant price pressures.
However, core prices were up at a 1.3 percent annual rate last quarter after a 2.4 percent drop in the prior three months. Some analysts said the turnaround suggested inflation was more likely to move up than down.