Trade Deficit Narrows as Exports Hit 10-Month High

The U.S. trade deficit fell more than expected in July as exports rose to their highest level in 10 months, offering further evidence that economic growth picked up early in the third quarter.

The Commerce Department said on Friday the trade gap narrowed 11.6 percent to $39.5 billion, declining after three straight months of increases. June's trade deficit was revised slightly up to $44.7 billion.

Economists polled by Reuters had forecast the trade gap decreasing to $42.7 billion in July after a previously reported $44.5 billion shortfall. When adjusted for inflation, the deficit dropped to $58.3 billion from $64.5 billion in June.

The trade report added to upbeat reports on consumer spending, industrial production and residential construction that have suggested the economy has regained momentum after output increased 1.0 percent in the first half.

Despite July's increase, exports continue to be hobbled by the residual effects of the dollar's surge against the currencies of the United States' main trading partners between June 2014 and December.

Export growth could come under pressure. International Monetary Fund Managing Director Christine Lagarde told Reuters this week the IMF would likely downgrade its 2016 global growth forecast because of weak demand, flagging trade and investment.

Exports of goods and services rose 1.9 percent in July to $186.3 billion, the highest since September 2015. Exports to the European Union dropped 9.5 percent, with goods shipped to the United Kingdom falling 9.2 percent.

Exports to China increased 3.8 percent.

Imports of goods and services slipped 0.8 percent to $225.8 billion in July. Oil prices averaged $41.02 per barrel in July, the highest level since September 2015.

It was the fifth consecutive month that oil prices increased.

Imports from China rose 2.4 percent. The politically sensitive U.S.-China trade deficit increased 1.9 percent to $30.3 billion in July.

(Reporting By Lucia Mutikani; Editing by Andrea Ricci)