The Herald Tribune reports that the U.S. trade deficit grew in October as exports slowed:

(emphasis mine)

U.S. trade deficit grew in October as exports slowed
By Michael M. Grynbaum
Published: December 12, 2008


The nation's trade deficit widened in October for the first time in three months as exports fell 2.2 percent, with big declines in sales of products like automobiles and consumer goods, the Commerce Department said on Thursday.

The growth in the trade gap comes at a time that American manufacturers had come to rely on exports to make up for declines in spending by domestic consumers.

But American-made goods are less attractive now that the dollar has strengthened against major world currencies. And the economic downturn is taking a toll on foreigners' willingness to pay big shipping costs for American goods.

The impact on American businesses and workers could be significant.

"There is clear evidence that the falloff in global demand is having a direct impact on top-line revenue growth at multinational corporations," said Steven Ricchiuto, an economist at Mizuho Securities USA. "That is going to help exacerbate the layoff problem. You're already starting to see it show through in the labor numbers we're getting."

With global demand for American-made goods falling, domestic businesses could be forced to cut back on production and lower their revenue projections for the new year — moves that would probably mean more layoffs.

"If you looked at the U.S. economy in recent quarters, exports and government spending were about the only things in positive territory," said Joshua Shapiro, chief domestic economist at MFR, a research firm. "In general, that demand is falling apart. That's always been the driving force for trade."

He described the declines in exports as broad-based, affecting nearly every type of industry, "pretty much soup to nuts."

Domestic demand has slackened as well; the only increases in imports in October came in crude oil — the price of which fell sharply over the course of the month — and consumer goods. Sales of foreign-made automobiles and machinery fell sharply.

The disappointing trade figures may lead to a more significant contraction in economic growth for the final three months of 2008. "Trade is now starting to subtract from GDP, and subtract in a big way," Ricchiuto said.

The trade deficit, the difference between what Americans import and export, rose 1.1 percent in October, more than economists had expected, to $57.2 billion, from $56.6 billion in September. It was the first report since the stock market cratered in October.

Imports fell 1.3 percent, to $208.9 billion, for the month. Purchases of foods, beverages and consumer goods rose slightly.

October exports totaled $151.7 billion, a 2.2 percent drop from September. Sales of American-made cars and car parts fell $236 million; consumer goods exports dropped $156 million; and industrial supply sales fell $1.4 billion. The trade deficit with China widened to $28 billion, from $27.9 billion in September. Growth in China has slowed and the government has stepped up its efforts to bolster the economy. Chinese exports dipped 2.2 percent from November 2007 to November 2008, the biggest annual decline since the end of the last century and a far sharper downturn than analysts were expecting.

In a separate report on Thursday, the Labor Department said that import prices fell 6.7 percent in November, led by the significant decline in oil and energy prices. It was the biggest decline in one month since monthly records began in 1988.

On the labor front, new applications for unemployment benefits rose 58,000 last week to 573,000, a 26-year high, the Labor Department said.

My reaction: Imports to the US are falling, but US exports are falling even faster. The exporting nations still have to finance our massive trade deficit, but are now getting a lot less benefits from it. If this trend continues and the US economy keeps shrinking, Asian nations will abandoning their dollar pegs and start focusing on stimulating domestic demand instead. The dollar will quickly lose all its value when this happens.

I will have more on this in an article tomorrow night or Monday.