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Weak imports and exports paints gloomy picture in US

THE US trade deficit widened in October as exports suffered the biggest drop in nearly four years, indicating slowing global demand was spilling over into the already struggling U.S. economy.

The Commerce Department said on Tuesday the trade gap increased 4.9 percent to $42.2 billion. In a sign of weak domestic demand, imports dropped to the lowest level in 1-1/2 years. Economists had expected the trade deficit to rise to $42.6 billion in October.

The wider trade gap in October reflected a 3.6 percent fall in exports of goods and services to $180.5 billion. That was the biggest percent drop in exports since January 2009.

"The report tells a tale of weakening economic growth momentum both domestically and globally," said Millan Mulraine, a senior economist at TD Securities in New York.

Exports have been one of the pillars supporting the economy since the 2007-09 recession ended. The pull back was telegraphed by weak manufacturing surveys and reflects slowing global demand.

Imports of goods and services fell 2.1 percent to $222.8 billion in October, the lowest since April 2011.

Trade was a modest boost to the third quarter's 2.7 percent annual growth pace. Revisions to September's data showed a narrower trade gap than previously reported and suggest the contribution from trade was probably slightly bigger.

Though October's trade data implied trade would make another small contribution to GDP in the fourth quarter, economists said the size of the drop in exports raised the bar high for that. In addition, a strike by West Coast dock workers in November likely reduced imports and exports during the month.

The three-month moving average of the trade deficit, which irons out month-to-to month volatility, widened modestly to $41.7 billion from $41.5 billion in the three months to September.

" If the trade flows over the last three months are to be taken as legitimate economic indicators, they point to contracting global trade flows," said John Ryding, chief economist at RDQ Economics in New York.

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" If global trade is contracting, this is a negative growth signal. "

In a sign of weak domestic demand, wholesale inventories increased 0.6 percent in October as sales fell for the first time in three months, the Commerce Department said in a second report.

The inventories/sales ratio, a measure how long it would take wholesalers to clear their warehouses, rose to the highest in three years.

Weak exports could pressure the manufacturing sector. Factory activity has also cooled in recent months because of fears deep government spending cuts and higher taxes, which are set to kick in next month, could push the economy into recession.

U.S. stocks were up with the Nasdaq rising more than 1 percent, after unexpectedly cheery data out of Europe. U.S. government debt prices fell, and the euro rose against the dollar.

A third report showed concerns about the so-called fiscal cliff hammered confidence among small business owners in November.

The National Federation of Independent Business said on Tuesday its optimism index plummeted 5.6 points to 87.5 last month, the weakest reading since March 2010.

While U.S. exports to the 27-nation European Union rose 1.4 percent in October to $21.7 billion, there was a decline in goods shipped to France, Germany, Italy and the United Kingdom.

However, the Commerce Department only reports goods trade balances with individual countries and regions on a not seasonally adjusted basis.

The EU collectively was the United States' second largest export market last year, and exports in the first 10 months of 2012 were down 0.7 percent compared to same period in 2011.

U.S. exports to Latin America also fell in October, and shipments to Japan were down 8 percent.

Although exports to China, which have been growing more slowly than in recent years, surged 23.1 percent in October, imports rose to a record. That pushed the contentious U.S. trade deficit with China to a record $29.5 billion.

China has been one of the fastest growing markets for U.S. goods, and exports to that country were up 6.4 percent for the first 10 months of 2012.

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