WASHINGTON - The U.S. trade deficit declined to $39.21-billion in August, the smallest gap in six months, reflecting a big drop in imports of cars and foreign oil.
However, America's trade deficit with China surged to an all-time high, a development certain to add to the pressure in Congress to punish China for what critics contend are the country's unfair trade practices.
The Commerce Department reported Friday that the August deficit was 2.1 percent lower than a revised July imbalance of $40.03-billion. That caught analysts by surprise because they had been forecasting the deficit would widen in August.
The improvement reflected big declines in imports of cars, auto parts and oil, helping offset a smaller drop in U.S. exports. That was the result of a big plunge in shipments of civilian aircraft.
The decline in August represented the fifth straight month that the country's trade deficit has improved after hitting a record monthly high of $42.98-billion in March. However, even with the string of declining deficits, the overall imbalance through the first eight months of this year is running at an annual rate of $433-billion, far above last year's record high of $418.04-billion.
In a second report Friday, the Labor Department reported that inflation at the wholesale level rose by a higher than expected 0.3 percent in September, after a 0.4 percent increase in the Producer Price Index in August.
Last month's rise in the PPI, which measures price pressures before they reach the consumer, was led by a 2.3 percent jump in food prices, the biggest increase in eight months. Energy prices, which had soared by 1.2 percent in August, posted a tiny 0.1 percent increase in September. Gasoline costs were up 2.2 percent last month after rising 6.3 percent in August.
"If you take out food and energy, wholesale prices are up just 0.1 percent from a year ago. That's about as close to price stability as you can get," said David Wyss, chief economist at Standard & Poor's in New York.
Wyss said the big drop in shipments of imported cars reflected in the August trade report may be a sign that U.S. dealers are starting to cut back on orders in anticipation of fewer sales of new models, given that the fall in the dollar's value will make imported cars more expensive for American consumers.
The Bush administration is seeking to demonstrate that it has a plan to lift the fortunes of America's manufacturing companies, which cut 2.7-million manufacturing jobs over the past three years in response to sluggish global demand and increased competition from imports.
President Bush sent Treasury Secretary John Snow to Beijing last month to lobby the Chinese government to cut its current rigid link between its currency, the yuan, and the U.S. dollar. American manufacturing companies contend that the yuan is undervalued by as much as 40 percent, giving Chinese products a huge price advantage.
The Chinese rejected the request to allow the yuan to rise in value against the dollar, but Bush is expected to raise the issue again during meetings he will hold with Chinese leaders this month in Bangkok, Thailand.
Bills have been introduced in the House and Senate that would impose across-the-board penalty tariffs on Chinese products unless China stops what critics contend is a blatant manipulation of its currency to gain trade advantages in violation of global trade rules.
The economic reports Friday had little impact on Wall Street. The Dow Jones Industrial Average closed down 5 points at 9,675. Other gauges ended mixed. The Nasdaq composite index edged up 3 to 1,915 - its highest level since March 11, 2002. The Standard & Poor's 500 index slipped less than a point to 1,038.
For August, America's trade deficit with China rose 3.2 percent to a monthly record of $11.7-billion. For the year, the deficit with China is running 22 percent higher than last year's record imbalance of $103-billion.
