U.S. trade deficit scales nine-month high; oil prices lift imports

By Lucia Mutikani

WASHINGTON (Reuters) - The U.S. trade deficit increased more than expected in October, hitting a nine-month high as rising oil prices helped to boost the import bill, suggesting that trade could be a drag on growth in the fourth quarter.

The Commerce Department said on Tuesday the trade gap widened 8.6 percent to $48.7 billion. That was the highest level since January and followed an upwardly revised $44.9 billion shortfall in September.

Economists polled by Reuters had forecast the trade deficit widening to $47.5 billion in October after a previously reported $43.5 billion deficit the prior month.

When adjusted for inflation, the trade deficit increased to $65.3 billion, also the largest since January, from $62.2 billion in September. The so-called real trade deficit in October was above the third-quarter average of $62.0 billion.

That suggests trade could subtract from gross domestic product in the October-December quarter, if the deficit does not shrink in the last two months of the year. U.S. financial markets were little moved by the wider trade gap, which was flagged in an advance report last month.

The chronic trade deficit has garnered the attention of Republican President Donald Trump, who has blamed it for the massive loss of U.S. manufacturing jobs as well as moderate economic growth.

Trump argues the United States has been disadvantaged in its dealings with trade partners and has ordered the renegotiation of the North American Free Trade Agreement (NAFTA), which was signed in 1994 by the United States, Canada and Mexico.

NAFTA talks have stalled, with Mexico and Canada rejecting a U.S. proposal to raise the minimum threshold for autos to 85 percent North American content from 62.5 percent as well as to require half of vehicle content to be from the United States.

The government reported last month that trade contributed 0.43 percentage point to the economy's 3.3 percent annualized growth pace in the third quarter. The Trump administration believes a smaller trade deficit, together with deeper tax cuts could boost annual GDP growth to 3 percent on a sustained basis.

RECORD HIGH IMPORTS

Republicans in the U.S. Congress have approved a broad package of tax cuts, including slashing the corporate income tax rate to 20 percent from 35 percent. But the planned fiscal stimulus will come at a time when the economy is at full employment, which will boost imports and widen the trade gap.

Imports of goods and services increased 1.6 percent to a record $244.6 billion in October. Goods imports were the highest since May 2014 amid a $1.5 billion increase in crude oil imports. Imported oil prices averaged $47.26 per barrel in October, the highest since August 2015.

The country's import bill was also pushed up by food imports, which were the highest on record. There were also increases in imports of cellphones and other goods.

Imports from China and Mexico were the highest on record in October.

Exports of goods and services were unchanged at $195.9 billion in October as shipments of soybeans fell $1.4 billion and civilian aircraft dropped by $1.1 billion. Exports of industrial supplies, however, increased by $2.6 billion to their highest level since November 2014 and petroleum exports were the strongest in three years.

Exports to China hit their highest level since December 2013, while those to Mexico were the highest in three years.

The politically sensitive U.S.-China trade deficit increased 1.7 percent to $35.2 billion. The trade deficit with Mexico surged 15.9 percent to $6.6 billion.

(Reporting By Lucia Mutikani; Editing by Andrea Ricci)