By Doug Palmer
WASHINGTON (Reuters) - Cheaper imported oil helped shrink the U.S. trade deficit in August, normally a boost for economic growth but this time not enough to tamp down fear that financial turmoil has already set in train a major downturn.
"With global credit markets now frozen and stock markets crashing, the U.S. can no longer look to foreign trade to prevent what is shaping up as a severe recession," said Nigel Gault, chief U.S. economist at Global Insight.
Trade has been a bright spot in the U.S. economy, helping fuel nearly two-thirds of economic growth over the past year as consumer spending and business investment has dwindled.
The August trade gap, which narrowed 3.5 percent from July to $59.1 billion, suggests trade could keep U.S. economic growth in positive territory in the third quarter, Gault said.
After that, "trade will no longer be able to keep growth in the black," he said.
But Ian Shepherdson, chief U.S. economist with High Frequency Economics, said he expected a 1 percent drop in third-quarter U.S. economic output even though the contribution of exports should remain strong "for a few more months."
Both imports and exports retreated in August from records set in July. The 2 percent drop for exports was the biggest in more than four years and would have been larger if not for a big jump in civilian aircraft shipments.
Investors paid scant attention to the report as the carnage on Wall Street continued.
U.S. stocks fell for an eighth day on Friday after slumping on Thursday. A dramatic late-day comeback stalled out and both the Dow and the S&P 500 finished down 18 percent for the week.
OIL PRICE DROP
U.S. crude oil future prices plunged more than 10 percent to close at $77.70 per barrel, the lowest since September 2007, on fears of a global recession that will crimp demand.
After a huge run-up beginning in early 2007, the average price for imported oil dropped to $119.99 per barrel in August from a record of $124.66 in July.
A drop in volume also helped cut the monthly oil import bill to $37 billion, the first drop in six months.
A Labor Department report on Friday showed oil import prices fell another 9 percent in September.
That was the chief factor in a 3 percent drop in overall import prices last month, the biggest one-month decline in 5 years, the department said.
U.S. export prices dropped 1.0 percent in September, the second consecutive decline after rising for 21 consecutive months, as inflation pressures have subsided in the wake of softer consumer demand.
If oil prices remain below $90 a barrel over the next few months, the monthly trade gap could narrow to roughly $35 billion, the lowest in six and a half years, Peter Ashworth, senior U.S. economist with Capital Economics, said.
Meanwhile, imports of foreign cars and car parts were the lowest since March 2005 in a sign of weak demand for big-ticket goods. Imports from Germany took the biggest tumble, followed by Japan. Canada and Mexico showed gains in the United States.
Overall imports from Japan dropped 7 percent in August, helping to push the U.S. trade gap with that country to the lowest since May 2003.
Imports from China rose slightly to a record $31.8 billion, pushing the U.S. trade gap with that country to $25.3 billion, the highest since October 2007.
NBC's payment for rights to air the Olympics in Beijing added about $900 million to the deficit, Gault said.
(Editing by James Dalgleish)
