The Commerce Department reported the trade deficit fell to $58.9 billion in October which is much lower than economists anticipated. The 8.4 % drop from September, the biggest percentage drop in 5 years, was primarily caused by moderating oil prices.
Here is the breakdown of the components that were responsible for the decline. Imports of goods and services fell 2.7 % in October, the most since December 2001. The deficit in petroleum products declined by $3.9 billion, to $18.8 billion, the smallest deficit since June last year. Also helping reduce the deficit was and an increase in U.S. exports which rose 0.2 percent, to $123.6 billion. The gain in exports reflects the increased demand for computers, drilling equipment and medicines.
Offsetting, these gains was a moderate increase in consumer goods imports which increased $238 million, to $38.3 billion, reflecting demand for medicines, toys and stereo equipment.
Why is a declining trade deficit good? Well, it means we owe other nations less money. A deficit is created when one country buys more goods and services from another country then it buys from them. A declining deficit is similar to a falling loan balance. Paying off debts is always a good thing. It strengthens our economy and the dollar. One reason the dollar has been falling compared to other currencies is our increasing trade deficit. For the dollar to keep its status as the world’s reserve currency, the U.S. needs to keep its trade deficit in check.
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