US third-quarter GDP forecasts raised after trade deficit narrows

US third-quarter economic growth could surprise on the upside after government data on Wednesday showed the goods trade deficit narrowed sharply to a seven-month low in September.

Economists had expected gross domestic product to expand at an annual rate of 1.6 per cent last quarter, according to a Reuters poll. Many, however, raised their forecasts after the Commerce Department reported that the goods trade deficit fell to $58.6 billion from $67.2 billion in August.

Economists now estimate that trade subtracted only one-tenth of percentage point from third-quarter GDP, rather than the about 0.8 percentage point they had previously forecast. Third-quarter GDP estimates were raised by as much as four-tenths of a percentage point to as high as a 2.0 per cent rate. Despite the revisions, growth will still have slowed sharply from the second quarter's brisk 3.9 per cent pace.