3Q GDP Overestimated: U.S. Trade Deficit Balloons Unexpectedly, Exports Hit Five-Month Low

The U.S. trade deficit unexpectedly ballooned in September, a widening fueled by a plummeting in U.S. exports that sent them to a five-month low. The latest Commerce Department report Tuesday suggested a slowing global demand that is likely undercut U.S. economic growth in the final quarter.

The slowdown follows a long-term pattern observed since the financial crisis, which reflects faster growth in the second and third quarters only to have annual GDP growth weighed down by a weak finish.

The Commerce Department said the U.S. trade gap skyrocketed 7.6 percent to $43.03 billion, while August’s trade deficit was revised to $39.99 billion from a previously reported $40.11 billion shortfall.

Economists polled by Reuters had forecast the gap narrowing slightly to $40.00 billion.

However, when the Commerce Department adjusted for inflation, then the trade deficit increased to an even greater $50.76 billion from $48.22 billion.

September’s gap is far larger than the $38.1 billion deficit that the government had assumed when it released its expected gross domestic product (GDP) estimate for the third quarter last week. Now, the data suggest the 3.5 percent annual growth pace it claimed was far too optimistic, and will probably be trimmed when the government publishes its revisions later this month.

Trade was reported to have contributed 1.32 percentage points to the estimated 3.5 percent GDP growth, leaving a lower-than-average real GDP number.

U.S. exports in September fell by 1.5 percent to $195.59 billion, which was the lowest measurement since April. It’s a sign that weakening demand in large markets, including China and the euro zone, was starting to sputter.

Still, exports are expected to weaken even further after a survey of U.S. manufacturers published on Monday showed a decline in a gauge of export order growth. Save for a slowdown in global demand, export growth is is also crimped by a strong — relatively strong — dollar. The dollar, though still with weakened purchasing power, is a safer bet than our trading partners’ currencies.

The decline in exports in September was really across the board, save for food and beverages, which actually ticked up a bit.

While imports from Canada hit their highest levels since 2008, U.S. exports to the European Union fell 6.5 percent and good sent to China fell 3.2 percent. Exports to Japan were even worse, tumbling 14.7 percent, far exceeding the similarly disappointing declines in exports to Mexico and Brazil.