The U.S. trade deficit narrowed unexpectedly in August as trade in services pushed exports slightly higher, while imports fell on a big drop in demand for foreign oil, the Commerce Department reported Friday. The trade deficit fell 3.5 percent to $30.7 in August, surprising economists who had expected higher oil prices to push the trade imbalance to $33 billion. Oil prices did jump, but the volume of oil shipments fell sharply in August. Through the first eight months of the year, the trade deficit is running at an annual rate of $357 billion, about half of last year's $695.9 billion imbalance. The huge decline reflects the recession that sharply weakened demand for imported goods. August imports fell 0.6 percent to $58.9 billion, reflecting a 5.7 percent drop in petroleum imports to $21 billion. A big 9.4 percent decrease in the volume of shipments offset a sharp rise in prices. The average price of imported crude rose to $64.75 a barrel, up from $62.48 in July and the highest since last November. Exports of goods and services rose for the fourth consecutive month, increasing 0.2 percent to $28.2 billion, the highest level since last December. The strength reflected higher sales of U.S. agricultural products like soybeans and wheat and increases in sales of autos and related parts, industrial engines, and telecommunications equipment. The increase in exports is being aided by a weakening dollar, which is down almost 12 percent against a basket of currencies since the start of the year. The dollar is expected to remain under pressure in coming months, largely due to soaring U.S. budget deficits. A weaker dollar helps exports by making U.S. products cheaper on foreign markets. A narrower trade deficit is positive for calculations of economic growth for the third quarter, but the slight decline in August imports could reinforce concerns about the strength of U.S. economic recovery from the recession that started in December 2007. The politically sensitive trade deficit with China fell slightly to $20.2 billion, down 0.9 percent from July. Through the first eight months of the year, the deficit with China totals $143.7 billion, down 15.1 percent from last year's record pace.
