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The U.S. trade deficit widened to a four-month high in October as overseas sales weakened and American companies imported more equipment and consumer goods.

The gap grew to $42.6 billion from the prior month's revised $36.2 billion, Commerce Department figures showed Tuesday. The 17.8 percent increase from September was the largest since March 2015. The Bloomberg survey median called for a $42 billion shortfall.

Stronger demand for imported merchandise indicates trade will weigh on U.S. growth after net exports in the third quarter contributed the most since the end of 2013. What's more, the latest rally in the dollar could squelch prospects for a pickup in exports as American-made goods become more expensive overseas.

"On balance, trade is expected to be a drag on GDP growth," Jay Bryson and Tim Quinlan, economists at Wells Fargo Securities LLC, wrote in a note. "The primary rationale for that is the fact that growth in the United States is still relatively steady and we are forecasting steady growth in consumer spending. The global economy is still on shakier footing."

Bloomberg survey estimates ranged from shortfalls of $37.5 billion to $44 billion after an initially reported $36.4 billion September deficit.

Exports decreased 1.8 percent, the most since January, to $186.4 billion in October on slower sales of foods, consumer goods and industrial supplies, the Commerce Department data showed. At the same time, exports of services were a record.

Imports rose 1.3 percent to $229 billion, reflecting the largest inflow of merchandise since September of last year. The value of telecommunications gear, pharmaceuticals and mobile phones entering the United States in October increased.

After eliminating the influence of prices, which renders the numbers used to calculate gross domestic product, the trade deficit widened to $60.3 billion, the highest in four months, from $54.2 billion in the prior month.

Trade contributed 0.87 percentage point to U.S. economic growth in the third quarter, the most since the final three months of 2013. A jump in soybean shipments to overseas customers that boosted exports in the third quarter is in the process of reversing. Trade and inventories are two of the most volatile components in GDP calculations.

The report also showed the trade gap with China, the world's second-biggest economy, narrowed to $31.1 billion from $32.5 billion as U.S. exports to the nation were the strongest since December 2013.

Trade deficits with European Union nations, Japan and Mexico increased in October from a month earlier.

Mexico is overtaking Canada as the No. 2 exporter of goods to the U.S. this year, in a sign of how economic ties have deepened between the two countries even as the relationship is being questioned by President-elect Donald Trump.

Shipments from Mexico totaled $245 billion in the first 10 months of the year, according to Commerce Department figures released Tuesday, ahead of Canada's $230 billion. If the trend continues, it would be the first time ever the U.S. bought more imports from its neighbor to the south. The two countries ended 2015 tied in exports to the U.S.

The trend of catching up to Canada puts China and Mexico as the top two exporters to the U.S. just as Trump prepares to take office in January, reflecting the strong pull of lower cost jurisdictions for the U.S. economy. Canada, which has one of the highest cost bases in the Americas, has seen its share of U.S. imports fall to about 13 percent from around 20 percent two decades ago.

"Integration with Mexico has become more solid than with Canada," said Marco Oviedo, chief Mexico economist for Barclays Plc. "Manufacturing continues to be very competitive in terms of wages and location to other U.S. producers and suppliers."

Business on 12/07/2016

Print Headline: October deficit in trade $42.6B


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