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. Last Updated: 07/27/2016

Oil, Chinese Trade Swell U.S. Deficit

WASHINGTON -- The U.S. trade deficit swelled to a near-record $24.41 billion in September, fueled by rising imports, high oil prices and a widening gap with China - the largest with any country on record.

The Commerce Department said Thursday that imports rose to an unprecedented $106.11 billion, driven by the booming U.S. economy, while exports slipped to $81.71 billion as aircraft shipments declined.

Despite the decline in exports, U.S. officials and analysts said the trend was improving, as Asian economies such as South Korea, Malaysia and Thailand rebound.

Commerce Under Secretary for Economic Affairs Robert Shapiro said a market-opening deal signed with Beijing on Monday should, over time, improve what he called an "unacceptably high" trade gap with China.

Imports from China surged to a record $8.22 billion, boosting the deficit to an all-time high of $6.90 billion, up from $6.87 billion in the previous month. It was the largest-ever monthly deficit with any country.

The market-opening agreement calls for China to cut tariffs and reduce other trade barriers, and paves the way for Beijing to join the World Trade Organization.

The deficit with major oil producing countries rose to a record $3.03 billion, as imports surged to an unprecedented $4.32 billion. The September price per barrel of crude petroleum was $19.52, the highest since February 1997 when the price was $20.48. It was the third consecutive monthly increase in oil prices.

The department said the trade gap in September rose from $23.55 billion in August, but was just below the record $24.89 billion deficit set in July.

Analysts, who had been expecting a $24.5 billion gap in September, said the trade deficit may finally be leveling off, and could improve in the months ahead.

"Our forecast, barring the unexpected, calls for gradual improvement in the deficit next year as our economy cools and foreign economies warm up," said Michael Fenollosa, an economist at John Hancock Mutual Life Insurance Co.

National Association of Manufacturers economist Gordon Richards said the deficit may decline further in the fourth quarter, but was likely to widen early next year. Currency markets largely ignored the report, while U.S. stocks raced ahead. The Dow Jones industrial average finished with a gain of 152.61 points,or 1.40 percent.

In its report, the Commerce Department said record imports in September, up from $105.99 billion in August, were fueled by strong consumer demand.

Analysts said a bigger deficit reflected sharply higher oil prices, and increased shipments of industrial supplies and materials. Imports of cars and parts declined, while shipments of consumer goods and food were flat.

Despite September's drop in exports, analysts said the export picture had improved in recent months, proof of Asia's recovery and rebounding U.S. shipments to Canada and Mexico. U.S. exports to Pacific Rim countries, excluding China and Japan, jumped 21 percent in the third quarter, compared to the same period a year earlier.

U.S. exports to Canada and Mexico, partners with the United States in the North American Free Trade Agreement, posted a 12 percent gain in the third quarter. "What it tells us is the rest of the world is picking up," said Paul Kasriel, chief domestic economist, Northern Trust. "And there's every reason to expect that the rest of the world is going to grow into the new year, and that means that our exports are going to grow."

But U.S. officials said major trade imbalances remained.

In addition to China, the deficit with Japan rose to $6.64 billion in September, up from $6.39 billion. The gap with South Korea doubled to $879 million from $426 million in August.

Imports from Central and South America also rose to an all-time high of $5.39 billion.