Drop in oil imports helps shrink trade deficit

WASHINGTON — The U.S. trade deficit edged down in August as foreign oil imports retreated from a record high the previous month, a drop that more than offset a setback in exports.

The Commerce Department said Friday the trade deficit declined by 3.5 percent in August to $59.1 billion, the smallest imbalance since June.

The deficit is expected to shrink even further in coming months as a severe economic slump in the U.S. depresses demand for oil and other imported goods. But exports also are expected to slow as economic weakness in the U.S. spreads to other countries. Exports had been the one bright light in an otherwise dismal U.S. economy this year.

America's foreign oil bill declined to $43.7 billion in August, down a record $7.3 billion from the all-time high of $51 billion in July. The drop reflected both lower shipments and oil prices.

The big decline in oil cut total imports to $223.9 billion, still the second highest level on record, but down by 2.4 percent from the record high set in July.

U.S. exports totaled $164.7 billion, also the second highest level on record, but down 2 percent from the July record. Exports have been the standout performer this year keeping economic growth positive.

However, that could soon change. A growing number of economists believe the renewed turbulence on Wall Street virtually guarantees the U.S. will fall into a recession this year. With the turmoil spreading to other countries, there is a growing worry about a global downturn.

"With global credit markets now frozen and stock markets crashing, the United States can no longer look to foreign trade to prevent what is shaping up as a severe recession," said Nigel Gault, chief U.S. economist at Global Insight, a Lexington, Mass., forecasting firm.

For August, the deficit with China edged up by 1.8 percent to $25.3 billion, the second-highest imbalance on record, as imports from that country rose to an all-time high. The import gain reflected big increases in shipments of toys and games, cell phones and clothing as U.S. retailers stocked up for the holiday sales season.

So far this year, the trade deficit is running at an annual rate of $717.1 billion, up slightly from last year's deficit of $700.3 billion, which had represented the first decline after five straight years of setting records.