Ahead of the Bell: US trade deficit

Associated Press

WASHINGTON (AP) — The U.S. trade deficit likely widened slightly in September, reflecting in part higher global oil prices.

The expectation is that the trade deficit increased to $45 billion in September, up from $44.2 billion in August, according to a survey by FactSet. The Commerce Department will release the report at 8:30 a.m. EST Thursday.

In August, the deficit widened because exports fell to the lowest level in six months. Growth has weakened around the globe this year, reducing demand for U.S. exports.

A wider trade deficit acts as a drag on growth. It typically means the U.S. is earning less on overseas sales of American-produced goods while spending more on foreign products.

In the July-September quarter, the economy grew at an annual rate of 2 percent, a slight pickup from the 1.3 percent expansion turned in from April through June. But trade trimmed the third quarter performance by 0.18 percentage point, reflecting a drop in exports.

Most economists believe that the economy will continue with weak growth of around 2 percent for the final three months of this year. Growth at that level is not fast enough to translate into a significant improvement in the trade deficit.

American manufacturers have been hampered by slumping economies in Europe, China and other key export markets. Many European countries are in recession, reflecting the troubles coming from a severe debt crisis in the region. Europe accounts for about one-fifth of U.S. exports.

America's deficit with China is on track to surpass last year's record, the highest imbalance ever recorded with a single country.

The widening trade gap with China has heightened trade tensions between the two countries. And it became a flash point in the presidential campaign. GOP challenger Mitt Romney had promised a tougher approach to combat what he saw as China's unfair trade practices including a currency policy that American manufacturers contend has kept the Chinese yuan undervalued against the U.S. dollar. A lower valued yuan makes Chinese goods cheaper for U.S. consumers and American products more expensive in China.

The Obama administration spent the first term lobbying China to move more quickly to allow the yuan to rise in value but it has refused in twice-a-year reports required by Congress to cite China as a currency manipulator, a designation that would require negotiations between the two nations and could lead to the United States filing a trade case against China before the World Trade Organization.

The administration last month announced it was delaying issuing the latest currency report until after the election which was won on Tuesday by Obama.

The International Monetary Fund in October reduced its projection for global economic growth to just 3.3 percent for this year and 3.6 percent in 2013. The downgrade from the July forecast reflected disappointing growth in the United States, spreading recession in Europe and slowdowns in China and other emerging market countries.

There have been some recent signs, however, that U.S. manufacturing is beginning to rebound from a spring and summer slowdown.

The Institute for Supply Management that its index of factory activity rose in October to 51.7. It was the second straight month that the index has been in expansion territory after having contracted from June through August. A reading above 50 indicates manufacturing is growing.