By Lucia Mutikani

WASHINGTON, (Reuters) – The U.S. trade gap narrowed in October due to record exports. This could make it possible for trade to support economic growth in this quarter.

On Tuesday, the Commerce Department reported that trade deficit fell 17.6% to $67.1 million. This was the largest percentage drop since April 2015. According to Reuters, economists had predicted a deficit of $66.8 trillion.

Christopher Rupkey (chief economist, FWDBONDS) in New York stated that “the trade deficit is shrinking big-time and pouring more fuel into the economic economy’s tank which ensures stronger growth as 2021 ends.”

The 8.1% increase in exports led to a record $223.6 billion. This surge was driven by exports of goods, which rose 11.1%, to $158.7billion, another record. With shipments rising $1.2 million, exports of materials and industrial supplies grew $6.4 Billion.

The exports of capital goods rose $3.1 Billion, thanks to other industrial machinery and civil aircraft. The exports of food increased by $2.1B, and soybeans grew $1.8B.

Consumer goods exports jumped $1.6billion, aided by increased shipments in gem diamonds, as well as parts for motor vehicles and engines. We exported more services. They grew $1.0 billion from $64.9 billion. The rise in business travel overseas and the increased cost of using intellectual property were factors that contributed to this increase.

This record-breaking increase in exports was offset by a 0.9% rise in imports, to $290.7billion. Imports of goods rose 0.7% to $242.7 million, an all-time record. Motor vehicles, engines and parts, which grew $1.5 billion, led the rise. Imports of consumer goods also saw increases, such as cell phones and household items.

The imports for industrial supplies and material fell along with the imports for capital goods. This was due to declines in semiconductors production and civil aircraft.

GROWTH BOOST

After inflation adjustment, the goods deficit dropped $13.5B to $97.6B in October. It was the smallest real goods deficit since December. The real goods trade deficit will continue to shrink and trade may contribute to the quarter’s gross domestic product. For five consecutive quarters, trade has been a major drag on GDP growth.

Mahir Rasheed of Oxford Economics in New York, stated that “we expect stronger export growth as well as moderate import volumes to maintain the deficit stable next fiscal year.” The Omicron variant, however, is a major downside risk. It could slow down the global recovery and distort trade flow.

After being slowed in the third quarter due to shortages, a flare up of COVID-19 infection and shortages, the economy has begun to regain its speed. Price pressures are being exacerbated by shortages caused in part by snarled supply chain due to the coronavirus.

The Federal Reserve has indicated that inflation may remain above 2%, even though wages are rising in the face of increased competition from workers.

On Tuesday, a separate Labor Department report showed that unit labor costs (the price per unit of labor) rose more than originally thought during the third quarter. Last quarter’s labor costs increased at 9.6% per annum, revising up from the November rate of 8.3%.

(Graphic: Historic drop in productivity, https://graphics.reuters.com/USA-ECONOMY/RECESSIONTEMPLATE/gkplgldylvb/chart_eikon.jpg)

In the April-June quarter, they rose by 5.9%. Instead of the 4.8% reported rate, labor costs rose at 6.3%. According to economists, unit labor costs will rise at an 8.3% rate last quarter.

The hourly rate of compensation rose to 3.9% in the third quarter rather than 2.9% as reported previously.

This surge in labor cost came at the expense worker productivity. It fell by 5.2%, a revised rate. The previous report stated that productivity had fallen by 5.0%. In the quarter of April-June, it grew by 2.4%.

The productivity rate fell 0.6% compared with the third quarter in 2020. The previous report stated that productivity had declined by 0.5%. The rate of hours worked rose by 7.4% last quarter. This is an increase from the 7.0 pace previously reported.