US trade deficit narrows as exports hit 2-1/2-year high

The U.S. trade deficit fell in August as exports of goods and services rose to the highest level in more than 2-1/2 years, suggesting trade could help to soften the blow on the economy from Hurricanes Harvey and Irma.

The Commerce Department said on Thursday that the trade gap declined 2.7 percent to $42.4 billion. July's trade deficit was revised slightly down to $43.6 billion from the previously reported $43.7 billion.

The department said the effects of Harvey and Irma along with Hurricane Maria would be "embedded in source data" for trade, and the impact of the hurricanes will likely be "reflected in subsequent trade reports until normal trade activities resume in affected areas."

Economists polled by Reuters had forecast the trade shortfall narrowing to $42.7 billion in August. When adjusted for inflation, the trade deficit was little changed at $61.8 billion. The so-called real trade deficit in August was below the second-quarter average of $62.4 billion.

While that suggests trade could contribute to gross domestic product in the third quarter, a rise in commodity prices after Harvey disrupted oil and gas operations along the Texas coast could push up the trade deficit in September.

Harvey and Irma, which struck Florida last month, are expected to cut at least six-tenths of a percentage point from economic growth in the third quarter. Trade added two-tenths of a percentage point to the second quarter's 3.1 percent annualized growth pace.

In August, exports of goods and services increased 0.4 percent to $195.3 billion, the highest level since December 2014. Goods exports were the highest since April 2015.

Exports to China increased 8.8 percent. Imports of goods and services dipped 0.1 percent to $237.7 billion in August. Imports of industrial supplies and materials were the lowest since November 2016.

Imports of goods from China increased 5.1 percent to a record high. The politically sensitive U.S.-China trade deficit rose 4.0 percent to $34.9 billion in August, the highest level since September 2015. (Reporting by Lucia Mutikani; Editing by Paul Simao)