the main points i see here are 1) the lower oil price helping to...

the main points i see here are 1) the lower oil price helping to bring down the value of imports moving forward and 2) the weaker dollar saying it's time to move rates up 'safely' again in order to slow the consumer once more. the us rates rise will strenghten the dollar a bit but rates are due to go up very soon in UK, OZ, NZ and Europe, so the dollars rates rise will be neutralised. as we stand now, a dollar rate rise is a certainty after the elections. i doubt it'll be before. too political. Nov +.25% so be prepared. could be .5%. it's not likely but not out of the question. aimho of course.

40.

jolly bloomberg ....



U.S. Trade Deficit Unexpectedly Widens to a Record (Update2)

By Joe Richter

Oct. 12 (Bloomberg) -- The U.S. trade deficit unexpectedly widened to a record $69.9 billion in August as energy prices rose and the shortfall with China reached an all-time high.

The deficit rose 2.7 percent from a $68 billion gap in July, the Commerce Department said in Washington, and exceeded the highest estimate in a Bloomberg News survey of economists. U.S. companies imported more computers, commodities and consumer goods at the same time they shipped a record amount abroad.

Americans' penchant for Japanese electronics and cheaper goods from China shows consumer spending is holding up even as the housing market falters. While a weaker dollar and expansion in Europe and Asia are helping boost exports, improvement in the trade deficit will be slow because the U.S. economy is still growing faster than many of its counterparts, economists said.

``The U.S. is still the engine of growth for the rest of the world,'' said Nariman Behravesh, chief economist at Global Insight Inc. in Lexington, Massachusetts. ``Going forward I would expect the deficit to ease a little bit because energy prices have come down.''

The dollar fell against the yen and euro after the report. The August deficit compares with the $66.7 billion median estimate in a Bloomberg News survey of 66 economists after a previously reported $8 billion gap. Forecasts ranged from $63.5 billion to $69 billion.

The deficit adjusted for changes in prices, figures the government uses in its calculation of gross domestic product, widened in August to $60.2 billion, the highest since January. The figures suggest the trade balance will detract from U.S. economic growth in the third quarter.

``Trade will still be a drag of about 0.8 percentage point on third-quarter growth,'' said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York.

Deficit With China

The politically sensitive trade deficit with China widened to $22 billion from $19.6 billion in July, exceeding the previous record of $20.5 billion reached in October 2005. Today's report showed that imports from China increased to an all-time high $26.7 billion in August. U.S. exports to the Asian nation fell to $4.8 billion.

Today's figures may aggravate tensions with the U.S. lawmakers who say an undervalued Chinese currency is unfairly helping the Asian nation's exporters. While the Chinese yuan has been allowed to gradually strengthen, today's figures show it's done little to correct the imbalance with the U.S. The yuan last month had the biggest gain of any month since the country ended a link to the dollar in July 2005.

China Trade Surplus

China posted its second-largest trade surplus in September. The gap narrowed less than forecast, to $15.3 billion from August's record $18.8 billion, the Beijing-based customs bureau said today on its Web site. For the first nine months, China's surplus reached $110 billion, exceeding last year's total.

Senators Charles Schumer and Lindsey Graham last month agreed to drop their legislation to levy tariffs of 27.5 percent on imports from China. The measure was aimed at forcing that country to raise the value of its currency. They said they will work on new legislation next year that would prod the Chinese without running afoul of global trade rules.

``It's in China's own interests that some exchange-rate adjustment over the next year or two really is an imperative,'' former U.S. Treasury Secretary Lawrence H. Summers said in an Oct. 5 interview. Summers cited monetary control of their country, resisting protectionist pressures and better capital allocation as reasons the adjustment would be in China's interest.

Imports Rise 2.4 Percent

Total imports of goods and services rose 2.4 percent in August to $192.3 billion. Exports increased 2.3 percent to $122.4 billion. Because the U.S. imports about 50 percent more goods and services than it sells abroad, exports have to grow about twice as fast just to stabilize the deficit.

Imports of capital goods from overseas producers rose $963 million in August as companies bought more telecommunications equipment, semiconductors and industrial machines. Consumer goods imports rose $678 million to a record in August, led by televisions, appliances and apparel.

The value of crude oil imports rose to $27.2 billion during the month as the average price per barrel increased to $66.12 from $64.84. Prices have since fallen and may help reduce the deficit in coming months.

Crude oil futures on the New York Mercantile Exchange have averaged less than $60 in the first week of October, after reaching a record $77.03 in July. The decline in energy prices during August may have come too late to make a big difference in the trade balance during the month, economists said.

September Figures

``The bulk of the pass-through of lower prices will likely be seen in September,'' said Drew Matus, senior economist at Lehman Brothers Holdings Inc. in New York.

Growing economies overseas are also allowing for increased exports. U.S. capital-goods exports increased $1.3 billion in August, led by more overseas shipments of commercial aircraft, industrial machines and computers.

Chicago-based Boeing Co., the world's second-biggest commercial-airplane maker, said it shipped 21 aircraft to foreign customers in August, up from 18 in July.

Emirates, the largest Arab airline, bought 10 Boeing Co. 747- 8F freighter aircraft and placed options for another 10 in an agreement valued at $5.6 billion. Boeing this month also won an order from Travel Service AS, the largest private airline company in the Czech Republic, for two 737 jets worth $150 million.

Weaker Dollar

A weaker dollar, which makes American goods cheaper overseas, will also help grind down the U.S. trade deficit in coming quarters, economists said. The dollar has declined 2.2 percent this year against a basket of currencies of major trading partners.

A narrower trade deficit added 0.42 percentage point to economic growth in the second quarter, which expanded at an annual rate of 2.6 percent, the government said last month.

``The good news is, what changed in the last year is that our exports are up pretty nicely,'' said Burlington Northern Santa Fe Corp. Chief Executive Officer Matthew Rose, in an interview Oct. 5.

To contact the reporter on this story: Joe Richter in Washington at [email protected]

Last Updated: October 12, 2006 08:59 EDT