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Bigger trade deficit suggests trade will drag on growth

The U.S. trade deficit increased in October as exports fell amid declining shipments of soybeans and other goods, suggesting that trade would be a drag on growth in the fourth quarter.

The Commerce Department said on Tuesday that the trade gap widened 17.8 percent to $42.6 billion. September’s trade deficit was revised slightly down to $36.2 billion.

Economists polled by Reuters had forecast the trade gap increasing to $41.8 billion in October after a previously reported $36.4 billion shortfall. When adjusted for inflation, the deficit rose to $60.3 billion from $54.2 billion in September.

Exports contributed 0.87 percentage point to the third quarter’s annualized 3.2 percent annualized rate of increase in the gross domestic product. The jump in exports in the last quarter largely reflected a surge in soybean shipments after a poor harvest in Argentina and Brazil.

While the reversal in soybean shipments, which is weighing on exports, suggests that trade is likely to subtract from GDP growth in the fourth quarter, consumer spending and a firming housing market are expected to keep supporting the economy.

Rising gas and oil well drilling in response to increasing oil prices is also expected to boost growth this quarter.

Exports fell 1.8 percent to $186.4 billion in October. Exports were held down by declining shipments of food, industrial supplies and materials, automobiles and consumer goods. Exports of soybeans, which helped power the economy in the third quarter, fell in September.

However, exports of capital goods were the highest since December 2015. Some of the drag on exports reflects the residual effects of the dollar’s surge against the currencies of the United States’ main trading partners between June 2014 and January 2016.

With the dollar resuming its rally in the wake of Donald Trump’s victory in the Nov. 8 presidential election, exports could struggle in early 2017.

In October, exports to the European Union fell 1.1 percent, with goods shipped to the United Kingdom tumbling 12.2 percent. But exports to China surged 32.8 percent to their highest level since December 2013.

Imports of goods and services increased 1.3 percent to $229.0 billion in October, the highest level since August 2015. Imports of petroleum goods were the highest in a year, reflecting an increase in crude oil prices.

Imports from China rose 4.2 percent to their highest level in a year. The politically sensitive U.S.-China trade deficit fell 4.2 percent to $31.1 billion in October.

retrieved from sources at cnbc. edited by the editorial team.

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