Dollar fall narrows US trade gap

The deficit fell by 5.5% to $178.5bn (£88.5bn) in the July to September 2007 quarter.

It was the smallest current account deficit since the $173.4bn figure recorded in the third quarter of 2005.

The current account is the broadest measure of trade, covering goods and investment flows between countries.

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The current account deficit had set all-time highs for five years in a row but has fallen for past two quarters, partly thanks to the decline of the dollar against many major currencies.

The weak dollar makes American products cheaper overseas while making foreign goods more expensive for US shoppers.

In the third quarter, the US had a $26.5bn surplus on trade in services, such as airline travel, and a $20.5bn surplus on investment income flows.

This was against the $199.7bn deficit on trade in goods, while financial transfers to foreigners - which includes grant aid and payments to foreigners on their US investments - came to $25.8bn.

'Big deficit'

Robert Brusca, chief economist at Fact And Opinion Economics in New York said: "This is pretty much what we thought it would look like.

"This is still a big deficit even though we had some modest reduction.

"Some of that progress is due to the fact that imports have been restrained and the economy is weakening. The good news is in exports.

"Still this underscores how difficult it is to make progress on the deficit."

Meanwhile other data from the Treasury Department showed international investment flowing into the US stood at $97.8bn in October, against an outflow of $150.8bn in August at the height of the credit crunch this summer.

The figures show that the lower value of the dollar has also made the US a more attractive place to invest for many foreign financial institutions and governments.

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