Bloomberg News

WASHINGTON - The U.S. trade gap narrowed in October as imports showed their steepest decline in almost two years, a sign that the cooling economy is curbing the domestic appetite for foreign-made goods.

The $33.2 billion deficit followed September's $33.7 billion gap, the widest on record, according to the Commerce Department.

Imports fell 1.6%, to $124.4 billion, after rising in September. That was the first decline since May and the largest since imports fell 1.9% in December 1998.

"The softening economy is slowing the demand for imports, and that is having the expected positive impact on the trade deficit," said Joel L. Naroff, president of Naroff Economic Advisors Inc. in Holland, Pa.

Exports fell 1.5%, to $91.2 billion, after a 0.2% decline the month before. Still, the narrower October trade gap was not enough to keep the deficit from reaching a record this year.

The numbers also revealed the effects of a dollar whose value has risen as much as 12% against a basket of currencies since December 1999. That has made U.S. exports more expensive and imports cheaper.

The trade deficit through October totaled $302.5 billion, up from $213.6 billion for the first 10 months of 1999, suggesting that the annual shortfall will reach $363 billion, up from the previous record of $265 billion in 1999.

Today's trade figures reflect declining two-way trade in aircraft, semiconductors, industrial engines and other capital goods, pointing to weaknesses in manufacturing.

While imports of consumer goods rose to a record, giving stores a mountain of toys, games, clothing and DVDs to move this holiday season, the 0.3% increase followed a gain of 1.7% a month before. That still puts retailers at risk of holding excess inventories if consumer spending doesn't pick up in the final week before Christmas.

U.S. retailers' same-store sales fell 0.6% last week, compared with a year earlier, the Bank of Tokyo-Mitsubishi Ltd. and UBS Warburg said. It was the third straight week-to-week decline. Winter storms in the Midwest and South hampered demand, said Michael Niemira, a Bank of Tokyo-Mitsubishi economist. Wal-Mart Stores Inc. said yesterday that its sales in the week ended Friday were below forecasts. Sears Roebuck & Co. also reported slower sales.

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