Consumer, trade data paints bleak picture

By Chris Reese

NEW YORK (Reuters) - U.S. consumer sentiment soured in early November on grim job prospects while a larger-than-expected trade deficit had analysts scaling back estimates for third-quarter U.S. economic growth.

The Reuters/University of Michigan Surveys of Consumers said on Friday its preliminary index of sentiment for November fell to 66.0, the lowest since August, from 70.6 in October. This was well below economists' median expectation of a reading of 71.0, according to a Reuters poll.

"Importantly, the decline in confidence was already in place before the announced increase in the unemployment rate to 10.2 percent on November 6," the Reuters/University of Michigan Surveys of Consumers said in a statement, adding "the likelihood that the sentiment index would drift even lower in the months ahead cannot be easily dismissed."

Within the survey, the 12-month economic outlook fell to its lowest since April.

Separately, the government reported the U.S. trade deficit widened in September by an unexpectedly large 18.2 percent, the biggest monthly jump in 10 years, as oil prices rose for a seventh straight month and imports from China increased.

The trade gap grew to $36.5 billion, from a slightly revised estimate of $30.8 billion in August, and added urgency to talks President Barack Obama will hold with Chinese leaders in coming days. Wall Street analysts had expected the shortfall to grow modestly in September to around $31.65 billion.

Both U.S. exports and imports had their best month since December 2008. Imports grew 5.8 percent in September, the biggest monthly gain since March 1993, while exports rose 2.9 percent.

LOWER GDP EXPECTATIONS

The rise in imports spurred some economists to downsize estimates for third-quarter growth. The U.S. government said last month the economy grew at an annual 3.5 percent rate in the third quarter after four quarters of contraction.

"Today's ... report revealed a September import surge that will take a chunk out of the (government's) optimistic 3.5 percent advance third quarter gross domestic product figure, which we now peg at 2.9 percent," said Michael Englund, chief economist at Action Economics in Boulder, Colorado.

Some analysts had expected more of an export boost because the drop in the value of the U.S. dollar against other major currencies makes American goods more competitive overseas.

But "the overall upturn in U.S. demand is trumping the fall of the dollar," said Craig Peckham, an equity trading strategist with Jefferies and Company in New York.

Imports of industrial supplies and materials showed the biggest gain in September, suggesting that U.S. manufacturers are ramping up for production after a withering recession.

The average price for imported oil leapt to $68.17 per barrel and imports from the Organization of Petroleum Export Countries increased to $11.9 billion in September, both the highest since November 2008.

Another report showed U.S. import prices rose for the third straight month in October, pushed up by a jump in the cost of fuel imports and by the depreciating dollar.

Import prices advanced 0.7 percent after a revised 0.2 percent increase in September, the Labor Department said.

The weak U.S. dollar is helping to lift U.S. exports, but at the same time, analysts cite it as a factor pushing up the price of oil and other commodities.

The U.S. dollar traded broadly lower as investors bought higher-yielding currencies and assets such as stocks, which closed modestly higher. For U.S. Treasuries, the strength in stocks offset the unexpectedly weak consumer sentiment, and prices were little changed.

U.S. TRADE GAP WITH CHINA WIDENS

The closely watched U.S. trade deficit with China widened 9.2 percent to $22.1 billion as imports grew 8.3 percent to $27.9 billion, both also the highest since November 2008.

For a graphic on the U.S. trade deficit with China see: http://graphics.thomsonreuters.com/119/GLB_USCH1109.gif

The overall U.S. trade deficit, including with China, has fallen significantly this year in response to the worst economic downturn in decades.

But the gap with China narrowed just 15.9 percent in the first nine months of the year, compared with much bigger declines for Canada (79.6 percent), the European Union (42.0 percent) and OPEC (71.8 percent).

That has reinforced ideas that China's currency remains undervalued against the dollar, giving Chinese companies an unfair trade advantage.

President Barack Obama is expected to raise concerns about China's exchange rate regime when he meets with Chinese leaders next week in Beijing. On Friday he was in Japan for talks before heading to Singapore for this weekend's annual summit of leaders of the Asia Pacific Economic Cooperation forum.

(Additional reporting by Doug Palmer in Washington; Editing by James Dalgleish)

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