The U.S. trade deficit narrowed to US$35.1 billion in October from a revised US$37.1 billion in September.

Exports dropped 1.0%, while imports plunged 2.4%, Bank of Montreal reports. “Both figures were depressed by the West Coast port shutdowns, and should retrace part of their losses in November. Imports of capital goods fell in October which, together with a declining trend in business equipment production, suggests that US capital spending slowed in the fourth quarter.”

“China’s looming presence continued to be felt, even as the U.S. trade deficit with the world’s most populous country narrowed in October,” says BMO Nesbitt Burns. “Year-to-date, China still has the largest deficit with the U.S. at $83.1 billion, on track to top $100 billion for all of 2002.”

CIBC World Markets says, “Mechanically, a narrower deficit boosts GDP, but the fact that exports and imports are both falling points to weak demand at home and abroad. Nevertheless, it is difficult to assess the implications of this report given the distortions from the port strike. Best to withhold judgement at this point, awaiting November/December figures that will incorporate the catch-up impact as normal port operations resumed.”

“Looking forward, the U.S. trade gap is likely to widen again as energy prices rebound and exports are constrained by sluggish overseas economies,” Nesbitt concludes.