The U.S. trade deficit was smaller-than-expected in August, narrowing to US$27.1 billion from $29.2 billion in July, but economists say that isn’t a good sign.

“The main surprise in the report was the jump in the value of exports, as imports continued to slide relentlessly,” says BMO Nesbitt Burns. Although it says, “The 1% increase in exports does not suggest that global economic activity was rebounding. Shipments of industrial supplies rose 3.8%, but this followed five months of decline, the last two being particularly sharp. Also higher were exports of automotive and food products. These offset declines in capital and consumer goods exports.” Year-over-year, exports are down 8%, it notes.

“A sharper-than-expected improvement in America’s trade deficit did nothing to alter the picture of an economy in recession,” says CIBC World Markets. “True, in terms of the net trade line in the national accounts, the narrowing in deficit, recoups the hit seen in the widening of the trade gap in July. But the broad based 1.1% decline in imports, which hit every goods category except autos, revealed an economy in which demand was softening markedly by August.”

On a regional basis, the non-seasonally-adjusted data showed most of the monthly improvement in the trade balance was on transactions with Western Europe, says CIBC.

“Don’t be fooled by the one-month uptick in exports; trade will be no friend to the U.S. economy in the third quarter,” insists CIBC. “For the first two months of Q3, real goods exports are averaging an annualized 16% below the Q2 average. And for those who prefer to look at net trade, the real net trade balance in goods is still weaker on average in the first two months of Q3 than in Q2. Looking ahead, exports have little prospect of doing much better in Q4 given the spreading slump among major American trading partners.”

BMO concludes, “The narrowing of the trade deficit was good news, but the slowing of capital goods trade suggests that global economic activity is decelerating.”