WASHINGTON (AP) — The nation’s trade deficit narrowed in the July-September quarter to the smallest level since late 2010, the Commerce Department said on Tuesday.

The deficit fell to $107.5 billion in the third quarter, down 9 percent from the second-quarter imbalance of $118.1 billion, the agency said. It was the lowest trade gap since the final three months of 2010.

The current account reported on Tuesday is the broadest measure of trade. It tracks the sale of merchandise and services between nations as well as investment flows. Economists watch the current account as a sign of how much the United States needs to borrow from abroad.

Many economists predict that the deficit will widen in coming quarters, in part because a global slowdown is limiting demand for American exports.

A debt crisis has pushed much of Europe into recession. The region accounts for about one-fifth of export sales from the United States. Other major export markets, including China, India and Brazil, have experienced slower growth.

The current-account deficit reached a record high of $800.6 billion in 2006. It then shrank after a deep recession cut into United States demand for foreign goods by a greater amount than American export sales diminished. The trade gap began widening again after the recession ended in June 2009.

The improvement in the current account in the third quarter reflected a decline in the deficit on goods and a small increase in the surplus on services, led by a gain in foreign earnings made by financial services, insurance and professional services provided by companies in the United States. The surplus on investment earnings narrowed to $50.8 billion, down from $52.1 billion in the second quarter.

The narrowing of the deficit in the third quarter left it at a level equivalent to 2.7 percent of the total economy, down from 3 percent in the second quarter. The third-quarter deficit represented the smallest percentage of the economy since the spring of 2009.

Paul Ashworth, the chief United States economist at Capital Economics, said that most of the improvement reflected a decline in America’s foreign oil bill. He predicted that the deficit would remain close to 3 percent of the total economy or slightly below through all of next year.

The deficit in the monthly trade report, which tracks only merchandise and services, increased in October as United States exports fell by a larger margin than imports, a development that was seen as a sign that slower global growth was beginning to weigh on the nation’s economy.

The overall economy grew at an annual rate of 2.7 percent in the July-September quarter, but many economists say they believe that growth has slowed to less than 2 percent in the current quarter. They say consumers and businesses have become more cautious about spending and investing because of the uncertainty over what Congress will do about the tax increases and spending cuts that will occur automatically in January unless Congress and President Obama reach a budget deal to avert them. Economists have warned that the harm to the economy could be great enough to push the country back into a recession.

Article source: http://www.nytimes.com/2012/12/19/business/economy/us-current-account-deficit-narrows-for-third-quarter.html?partner=rss&emc=rss