The U.S. trade deficit widened in October as exports suffered the biggest drop in nearly four years, indicating slowing global demand was spilling over into the already struggling U.S. economy.
The Commerce Department said on Tuesday the trade gap increased 4.9 per cent to $42.2-billion. In a sign of weak domestic demand, imports dropped to the lowest level in 1-1/2 years. Economists had expected the trade deficit to rise to $42.6-billion in October.
The wider trade gap in October reflected a 3.6-per-cent fall in exports of goods and services to $180.5-billion. That was the biggest per-cent drop in exports since January 2009.
"The report tells a tale of weakening economic growth momentum both domestically and globally," said Millan Mulraine, a senior economist at TD Securities in New York.
Exports have been one of the pillars supporting the economy since the 2007-09 recession ended. The pull back was telegraphed by weak manufacturing surveys and reflects slowing global demand, especially in China and debt-ridden Europe.
Imports of goods and services fell 2.1 per cent to $222.8-billion in October, the lowest since April 2011.
Trade was a modest boost to the third quarter's 2.7 per cent annual growth pace. Revisions to September's data showed a narrower trade gap than previously reported and suggest the contribution from trade was probably slightly bigger.
However, economists cast doubt on whether trade would contribute to growth in the final three months of this year, citing struggling exports.
Weak exports could pressure the manufacturing sector. Factory activity has also cooled in recent months because of fears deep government spending cuts and higher taxes, which are set to kick in next month, could push the economy into recession.
The three-month moving average of the trade deficit, which irons out month-to-month volatility, widened modestly to $41.7-billion from $41.5-billion in the three months to September.
While U.S. exports to the 27-nation European Union rose 1.4 per cent in October to $21.7-billion, there was a decline in goods shipped to France, Germany, Italy and the United Kingdom.
However, the Commerce Department only reports goods trade balances with individual countries and regions on a not seasonally adjusted basis.
The EU collectively was the United States' second largest export market last year, and exports in the first 10 months of 2012 were down 0.7 per cent compared to same period in 2011.
U.S. exports to Latin America also fell in October, and shipments to Japan were down 8 per cent.
Although exports to China, which have been growing more slowly than in recent years, surged 23.1 per cent in October, imports rose to a record. That pushed the contentious U.S. trade deficit with China to a record $29.5-billion.
China has been one of the fastest growing markets for U.S. goods, and exports to that country were up 6.4 per cent for the first 10 months of 2012.