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Trade deficit drops, raising hopes

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Associated Press / December 18, 2007

WASHINGTON - The US trade deficit declined during the third quarter to the lowest level in two years, raising hopes that the country's trade troubles could be easing.

The Commerce Department reported yesterday that the current account trade deficit fell by 5.5 percent to $178.5 billion in the July-September quarter. That was a better-than-expected showing and the smallest current account imbalance since a $173.4 billion deficit in the third quarter of 2005.

The current account is the most comprehensive measure of trade because it includes not only trade in products and services but also investment flows between countries.

The current account deficit had set record highs for five consecutive years but has declined for two consecutive quarters, prompting economists to predict that this year will see the deficit finally start to decline.

"The combination of slower growth in US demand, solid growth in overseas economies, and a declining dollar has been pulling the trade deficit lower as exports have outstripped imports," said Nigel Gault, chief US economist at Global Insight.

The improvement in trade is helping give badly needed support to a US economy battered by a prolonged slump in housing and a severe credit crunch.

President Bush tried to reassure Americans about economic prospects yesterday, telling a Rotary Club audience while there are "definitely some storm clouds and concern," the underlying economy is in good shape.

The trade improvement reflects in part the decline of the dollar against other currencies. A weaker dollar makes US products cheaper in foreign markets while making foreign goods more expensive in America.

The deficit in goods shrank by 2.2 percent to $199.7 billion in the third quarter as record levels of export sales helped offset a rising foreign oil bill.

The surplus in services, items such as airline tickets and consulting fees, increased by 3 percent to $26.5 billion. The surplus in investment income flows surged by 61.5 percent to $20.5 billion. The only deterioration occurred in the category that includes foreign aid, which rose to $25.8 billion, up from $23.2 billion the previous quarter.

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