WASHINGTON, Nov 26 (Reuters) - The U.S. goods trade deficit fell sharply in October as both exports and imports declined, pointing to a continued reduction in trade flows that has been blamed on the Trump administration' "America First" policy.
The Commerce Department said on Tuesday the goods trade gap dropped 5.7% percent to $66.5 billion last month.
Exports fell 0.7% after decreasing 1.3% in September. Exports were depressed by a drop in shipments of foods and feeds, likely soybeans. Automobile exports also declined and were probably weighed down by a 40-day strike at General Motors , which undercut motor vehicle production.
There were also decreases in exports of capital and consumer goods. Exports of industrial supplies, however, rose.
Goods imports tumbled 2.4% in October after falling 2.1% in the prior month, amid decreases in imports of industrial supplies, motor vehicles and consumer goods. Imports of capital goods rebounded modestly.
The shrinking trade gap is positive for the calculation of gross domestic product and suggests trade could support the economy in the fourth quarter as growth slows amid cooling consumer spending and persistent weakness in business investment.
But the continued decline in both exports and imports is a worrying trend. The White House's protectionist trade policy has left the United States embroiled in a trade war with China, and engaged tit-for-tat tariffs with other countries. The government argues that the tariffs are necessary to protect manufacturers from what it says is unfair foreign competition.
Trade subtracted 0.08 percentage point from GDP growth in the third quarter. The economy grew at a 1.9% annualized rate in the July-September quarter after expanding at a 2.0% pace in the second quarter. Growth estimates for the fourth quarter are below a 2.0% rate.
The Commerce Department also reported on Tuesday that retail inventories increased 0.3% in October after gaining 0.2% in the prior month. Motor vehicle and parts inventories dipped 0.1% after edging up 0.1% in September. They were likely restrained by the GM strike.
Retail inventories, excluding motor vehicles and parts, the component that goes into the calculation of gross domestic product jumped 0.6% after rising 0.2% in September. Wholesale inventories rebounded 0.2% last month after declining 0.7% in September.
Data this month showed a modest rebound in retail sales in October and continued decline in production at factories. The economy is losing speed mainly because of the 16-month U.S.-China trade war. The fading stimulus from last year's $1.5 trillion tax cut package is also constraining growth. (Reporting By Lucia Mutikani Editing by Chizu Nomiyama)