US trade deficit narrows as exports rebound and imports retreat

The U.S. international trade deficit narrowed substantially in September to $40.81 billion from a modestly revised $48.02 billion in August (previously $48.33).

Exports of goods and services rose 1.6%. Most categories saw gains, with consumer goods taking the lead, up 8.1% following two previous months of decline. Imports, in contrast, fell 1.8%, with broad-based declines across sectors. Adjusted for inflation, real goods exports rose a robust 3.0%, while real goods imports fell 1.2%.

Don't read too much into the month-to-month volatility. This was a good month for trade, but given the challenges to global growth it is unlikely the start of a trend. Still, it is a nice way to finish the third quarter and begin the fourth.

The good news is that the dollar's adjustment is largely behind it. The Fed's statement in October appears to have managed to raise expectations for an earlier liftoff without putting too much upward pressure on the dollar. While global growth will remain a challenge for U.S. exporters, the strength in domestic demand should be enough for the economy to continue to deliver above-trend growth over the next year.

"The Census Bureau now publishes an advanced trade-report two weeks prior to this release. This has reduced the error in estimates of quarterly economic growth. Relative to the BEA's advanced estimate, the drag from trade appears to be very marginally higher than previously estimated, but not enough to materially change the 1.5% estimate", notes TD Economics.