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The U.S. trade deficit unexpectedly narrowed in August as exports climbed to the highest level of the year and oil imports plunged.

The gap fell 3.6 percent to $30.7 billion from a revised $31.9 billion in July, the Commerce Department said today in Washington. The 0.2 percent increase in demand for American- made goods abroad would have been larger excluding a drop in aircraft shipments, which tend to be volatile.

More than $2 trillion in government stimulus programs are reviving demand from Asia to Europe, ensuring American factories benefit from growing sales overseas as the dollar weakens. Gains in production and the need to replenish depleted inventories mean imports will probably also grow in coming months, preventing the deficit from narrowing further.

“Exports continue to hold up pretty well, as a recovery is occurring in many parts of the world, especially in Asia,” said Jay Bryson, global economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “The weakness of the dollar will improve the competitiveness of our products,” he said, and “imports will reflect the stabilization in the U.S.”

The trade gap was projected to widen to $33 billion from an initially reported $32 billion in July, according to the median forecast in a Bloomberg News survey of 76 economists. Deficit projections ranged from $29 billion to $35.3 billion.

Bernanke Comments

The dollar held earlier gains following the report, propelled by comments from Federal Reserve Chairman Ben S. Bernanke yesterday that the central bank is ready to raise interest rates once the economy improves.

The dollar rose the most against the Japanese yen since August, bringing it to 89.80 yen as of 4:37 p.m. in New York. Stocks rose, with the Standard & Poor’s 500 Index closing up 0.6 percent at 1,071.49 in New York. The dollar yesterday fell toward its lowest level since August 2008 against the currencies of six major U.S. trading partners.

A weaker dollar is likely to stimulate foreign demand in coming months as U.S.-made goods become cheaper for overseas buyers. Manufacturing expanded over the last two months, the first back-to-back gain since before the recession began in December 2007, according to the Institute for Supply Management. The Tempe, Arizona-based group’s export gauge in August reached the highest level in a year.

Exports increased to $128.2 billion, led by a $496 million gain in sales of cars and parts, today’s report showed. Exports to Canada reached the highest level since November, in part reflecting the cross-border trade in autos.

GDP Calculation

Imports fell 0.6 percent to $158 cheap pay day loans.9 billion in August after jumping the prior month by the most in 16 years. Purchases of crude oil from overseas dropped as the U.S. imported 8.66 million barrels a day on average, down from 9.56 million in July. The average price per barrel rose to $64.75 from $62.48.

After eliminating the influence of prices, which are the numbers used to calculate gross domestic product, the trade deficit narrowed to $37.7 billion from $38.8 billion. Excluding petroleum, the trade deficit widened to $14.2 billion from $14 billion the prior month.

The trade gap with China was little changed in August as both exports and imports climbed. Group of Seven officials, in a statement this month, welcomed China’s “continued commitment” to a more flexible currency, which they said would promote balanced international expansion.

‘Good Sign’

“It’s very much in China’s interests, as its economy grows, to be less dependent on exports as the principal engine of economic growth,” White House economic adviser Lawrence Summers said in an interview yesterday.

Treasury Secretary Timothy Geithner, in a press conference during the Group of 20 summit in Pittsburgh last month, praised steps China already has taken to strengthen its economy.

“If you look at the composition of growth so far, their current-account surplus, their trade surplus is coming down, and domestic demand is getting stronger, and that’s a good sign of the shift,” Geithner said.

The U.S. economy likely saw a return to growth in the third quarter after contracting in the prior six months, according to economists surveyed by Bloomberg, as the Obama administration’s $787 billion stimulus package started to have some effect.

The euro area is stabilizing after governments injected billions in the 16-nation region’s economy through tax cuts and spending incentives. China is spending 4 trillion yuan ($590 billion) to stimulate the world’s third-largest economy.

Companies seeing a turnaround include Alcoa Inc., the largest U.S. aluminum producer. New York-based Alcoa reported an unexpected third-quarter profit, helped by improving metal prices, job cuts and lower raw-material costs. Chief Executive Officer Klaus Kleinfeld said the second half of the year is better in many industries and regions.

“We do clearly see growth, substantial growth, I might add, in China,” Kleinfeld said on an Oct. 7 conference call, adding that there also is “stabilization in North America.”

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Australian central bank Governor Glenn Stevens has a reputation for doing the unexpected — and getting it right.

His gamble yesterday, when he became the first central bank chief among the Group of 20 nations to raise interest rates since the height of the global financial crisis, could make or break that reputation. Get it right and Australia will extend its 18 years of economic growth. Get it wrong and he could nip the nation’s rebound in the bud.

“Stevens is doing what he thinks is the right thing for the broader community — if that means flying in the face of convention, he’ll do it,” said Warren Hogan, chief economist at Australia & New Zealand Banking Group Ltd. in Sydney. “If Australia receives another shock from the global economy, this will look like a misguided policy move.”

Stevens, a 51-year-old amateur pilot who was promoted to governor from his role as deputy in 2006, is not new to controversy. In 2007, he raised interest rates during an election campaign, destroying then Prime Minister John Howard’s boast about his government’s record of keeping borrowing costs low. In April last year, he was criticized by politicians, retailers, one of his predecessors and newspapers for raising interest rates too far too fast and risking a recession.

Instead, Australia was one of the few nations to skirt the global recession, prompting former Reserve Bank Governor Bernie Fraser in June to reverse his earlier criticism of Stevens, telling Bloomberg: “Glenn Stevens has been first class. When we look at what has happened around the world, he has proved to be one of its best central bank governors.”

Murdoch Newspaper Mellows

Even Rupert Murdoch’s Sydney tabloid the Daily Telegraph has toned down its criticism. On April 5 last year, it led its front page with a picture of Stevens and the headline: “Is This The Most Useless Man in Australia” after he raised rates to a 12-year high of 7.25 percent. Today, it was more circumspect, saying in an editorial of yesterday’s decision that Stevens “could well be right, in which case the decision to increase interest rates will be seen as practically clairvoyant.”

Demand for Australian minerals from China, the nation’s second-largest trading partner in 2008, plus a surge in consumer and business confidence, will help economic growth accelerate in coming months, the central bank says.

Governor Stevens said yesterday that gross domestic product will expand “close to trend” next year, which economists including Citigroup Inc.’s Josh Williamson say is currently between 2.75 percent and 3 percent.

By contrast, the International Monetary Fund forecast last week that the U.S. economy will expand 1.5 percent, Japan by 1.7 percent and the euro region by 0.3 percent.

November Increase

Surging domestic growth will prompt Stevens to raise rates by another quarter percentage point on Nov. 2, according to 21 of 23 economists surveyed by Bloomberg News today.

The central bank’s track record also suggests Stevens may raise rates by more than a quarter point if further evidence emerges of an economic rebound or faster gains in property prices.

The governor slashed the benchmark rate by one percentage point in October 2008 when the global credit crisis was at its worst, the biggest cut since 1992.

“Stevens was one of the first to move rates by a sizeable amount last October and others followed” around the world, said Stephen Walters, chief economist at JPMorgan Chase & Co. in Sydney, who was the only analyst among 20 surveyed by Bloomberg to tip yesterday’s move. “He can take a lot of credit for those aggressive moves” as they helped the economy shrug off the global recession.

Australia’s central bank also moved ahead of other central banks in May 2002, beginning a tightening cycle when economic growth was still slowing after the Sept. 11, 2001, terrorist attacks.

‘Moved Too Soon’

Investors have a 66 percent expectation Stevens will raise borrowing costs by a quarter point next month, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 11:58 a.m.

Australia’s currency hit a 14-month high after yesterday’s rate increase, taking its gain this year against the U.S. dollar to 27 percent. The nation’s benchmark S&P/ASX 200 stock index is headed for its steepest annual gain since 1993, beating equity gauges for the U.S. and the world.

Still, some say Stevens moved too soon.

“We would have liked to have seen the Reserve Bank hold off on this decision” for a few more months, said Margy Osmond, chief executive officer of the Australian National Retailers Association. “Even sniffs of an interest-rate increase makes a difference in terms of people’s attitudes towards spending.”

Cash Handouts

Spending by consumers, whose confidence jumped to a two- year high this month, has been buoyed by the government’s decision to distribute A$20 billion ($18 billion) in cash to households following last year’s collapse of Lehman Brothers Holdings Inc. Rate gains may prompt shoppers to cut back.

“That is a real danger” if Stevens raises rates “too quickly or by too much,” said ANZ Bank’s Hogan. “Australia is still an economy where economic growth is below trend, inflation is falling and expansionary policy is still warranted.”

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U.S. service industries expanded in September for the first time in a year as the emerging recovery spread from housing and factories to the broader economy.

The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the economy, rose to 50.9, higher than forecast, from 48.4 in August, according to the Tempe, Arizona-based group. Fifty is the dividing line between expansion and contraction.

Federal Reserve efforts to unlock credit and government measures such as “cash-for-clunkers” and a tax credit for first-time homebuyers are reviving demand and likely helped the economy grow last quarter. Nonetheless, last week’s report showing job cuts accelerated in September is a reminder that gains in purchases may not be sustained as incentives expire.

“We should continue to see broad improvement in the economy,” said Ellen Zentner, a senior economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. Even so, she said, “hurdles remain within the side of the economy that creates jobs. It’s going to be growth, but weak growth.”

The index was projected to increase to 50, according to the median forecast in a Bloomberg News survey of 70 economists. Estimates ranged from 45 to 52.1. Before today’s report, the gauge had shown contraction in every month since October 2008, just after Lehman Brothers Holdings Inc. filed for bankruptcy.

Stocks Higher

Stocks rose after the report, rebounding from the first two-week decline since July and led by financial shares as Goldman Sachs Group Inc. said big banks will outperform regional lenders. The Standard & Poor’s 500 Index closed up 1.5 percent at 1,040.46 in New York. Treasury securities were little changed from Oct. 2.

The ISM non-manufacturing gauge of new orders rose to the highest since October 2007, and the index of employment gained to 44.3, the highest since August 2008 and signaling job cuts were decelerating.

Employers unexpectedly cut more jobs last month than in August and unemployment climbed to the highest level since 1983, Labor Department data showed on Oct. 2. Payrolls fell by 263,000 following a 201,000 drop the prior month, while the jobless rate rose to 9.8 percent from 9.7 percent. The U.S. has lost 7.2 million jobs since the recession began in December 2007.

Job losses are a “concern,” Anthony Nieves, chairman of the ISM’s non-manufacturing survey, said on a conference call. “Until we see employment come back, we are not going to see dramatic growth in the economy.”

Employment Trends

A measure of U.S. job prospects improved in September for the first time in more than a year, a sign job losses may not keep accelerating, a private survey showed. The Conference Board’s Employment Trends Index rose 0.3 to 88.5, the first increase since January 2008 and the highest level since April, the New York-based private research group said today.

Economic growth next year probably won’t be strong enough to “substantially” bring down unemployment, which may remain above 9 percent at the end of 2010, Fed Chairman Ben S. Bernanke told lawmakers on Oct. 1.

Five of 18 industries in the ISM services survey including utilities, health care, housing, retailing and construction, expanded last month, today’s report showed.

ISM’s factory index on Oct. 1 showed manufacturing, which accounts for about 12 percent of the economy, expanded less than economists anticipated in September. The measure slipped to 52.6, the first drop this year, from 52.9 in August.

Economy Growing

Recent data signal growth resumed in the third quarter after the economy shrank in the first half of 2009. Consumer spending, about 70 percent of the economy, jumped in August by the most since October 2001, led by the government’s $3 billion incentive program to trade in older, less fuel-efficient cars.

Homebuilding, which is included in ISM’s services index, may no longer be a drag on growth as steadier demand trims the property glut. The number of contracts to buy previously owned homes rose in August for a seventh month, lifted by the first- time buyer credits, data from the National Association of Realtors showed last week.

Macy’s Inc., the second-largest U.S. department store chain, is among retailers that are seeing more stable sales and planning to hire staff for the holiday season.

“We are seeing some stabilization ourselves,” Chairman and Chief Executive Officer Terry Lundgren said in a Sept. 8 interview on Bloomberg Television. “We have a much better handle now on where we are headed.”

Frits van Paasschen, chief executive officer of Starwood Hotels & Resorts Worldwide Inc., the third-largest U.S. lodging company, said last week that higher demand for hotel rooms in New York City may signal the U.S. is beginning to emerge from the recession.

“Occupancy is starting to come back, yes, at low rates, but if this recovery looks like a normal recovery we would see in a couple of quarters rates come back as well,” Van Paasschen said in an Oct. 1 interview. “I am just not sure if this is a normal recovery.”

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Service industries in the U.S., the largest share of the economy, probably stabilized in September after contracting for almost a year, economists said before a report this week.

The Institute for Supply Management’s index of non- manufacturing businesses, which reflects almost 90 percent of the economy, rose to 50, according to the median of 64 forecasts in a Bloomberg News survey ahead of figures tomorrow. Fifty is the dividing line between expansion and contraction.

The emerging recovery in manufacturing and housing spurred by government measures such as “cash-for-clunkers” and a tax credit for first-time homebuyers started spreading to the broader economy. Nonetheless, last week’s jobs report showing payroll cuts accelerated in September is a reminder that gains in sales may not be sustained as incentives expire.

“The economy is in a recovery but the recovery in the labor market has lost some steam,” said Zach Pandl, an economist at Nomura Securities International Inc. in New York. “The service sector, while on a sustainable path of growth, is only improving very gradually.”

The projected reading for the Tempe, Arizona-based ISM’s services gauge would be the first break-even point since September 2008, when Lehman Brothers Holdings Inc. filed for bankruptcy. The measure was 48.4 in August.

ISM’s factory index on Oct. 1 showed manufacturing, which accounts for about 12 percent of the economy, expanded less than economists anticipated. The measure fell to 52.6 in September, the first drop this year, from 52.9 in August.

More Job Losses

Job losses accelerated last month and the unemployment rate climbed to the highest level since 1983, Labor Department data showed on Oct. 2. Payrolls fell by 263,000 following a 201,000 decline the prior month, while the jobless rate rose to 9.8 percent from 9.7 percent. The U.S. has lost 7.2 million jobs since the recession began in December 2007.

U.S. stocks fell on Oct. 2, capping the market’s first back-to-back weekly declines since July, as the bigger-than- estimated loss of jobs spurred concern the economy is struggling to recover. The Standard & Poor’s 500 Index retreated 0.5 percent to close at 1,025 pay day loans.21 in New York.

Economic growth next year probably won’t be strong enough to “substantially” bring down the jobless rate, which may remain above 9 percent at the end of 2010, Fed Chairman Ben S. Bernanke told lawmakers on Oct. 1.

Growth Rebound

Recent data signal the economy began growing in the third quarter. Consumer spending, about 70 percent of the economy, jumped in August by the most since October 2001, as the government’s $3 billion cash-for-clunkers incentive to trade in older, less fuel-efficient cars helped auto sales.

Homebuilding, which is included in ISM’s services index, may no longer be a drag on growth as rising sales help trim the glut of properties on the market. The number of contracts to buy previously owned homes rose in August for the seventh straight month, lifted by tax credits for first-time buyers, a report from the National Association of Realtors showed last week.

Service companies seeing a pickup include Carnival Corp., the biggest cruise-line operator. The Miami-based company raised its full-year profit forecast because of better-than- expected ticket bookings.

“Throughout the summer, booking volumes have continued to be quite strong which has enabled us to achieve higher last- minute prices,” Howard Frank, chief operating officer of Carnival, said on a Sept. 22 conference call.

Bigger Trade Gap

A report from the Commerce Department on Oct. 9 may show the trade deficit widened in August to $33 billion from $32 billion in July, the Bloomberg survey shows. Both imports and exports are likely to rise as demand worldwide picks up. Imports may have seen a bigger boost in August as American companies replenished depleted inventories, economists said.

The world economy will expand 3.1 percent next year, the International Monetary Fund said last week, exceeding its July forecast of 2.5 percent. The lender raised the outlook for China, and said developing Asia will grow at more than twice the pace of advanced economies including the U.S., Germany and Japan.

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U.S. job losses unexpectedly accelerated last month and the unemployment rate reached the highest level since 1983, signaling any recovery in consumer spending and economic growth will be slow to develop.

The Labor Department figures prompted President Barack Obama to say he’s working to “explore any and all additional measures” to spur growth, and underscored forecasts for the Federal Reserve to keep its benchmark interest rate near zero through next year.

“This has the potential to put a big stop sign on the road to economic recovery,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “The harder jobs are to get, the harder and longer this road to recovery is going to be.”

Payrolls dropped by 263,000 in September, exceeding the median forecast in Bloomberg’s survey, with losses extending from cash-strapped state and local governments to retailers to builders, yesterday’s report showed. The jobless rate rose to 9.8 percent from 9.7 percent in August, while working hours matched a record low.

The Standard & Poor’s 500 Index closed down 0.5 percent at 1,025.21 in New York trading, losing 1.8 percent for the week. Ten-year Treasury yields rose to 3.22 percent late yesterday from 3.18 percent the prior day. The dollar sank 0.2 percent to 1.4576 per euro at 5:30 p.m. New York time.

Orders Fall

Obama called yesterday’s report a “sobering reminder that progress comes in fits and starts” in remarks at the White House after returning from Copenhagen, where he made an unsuccessful bid for Chicago to host the 2016 Olympic Games.

A Commerce Department report yesterday showed orders placed with factories fell unexpectedly in August, restrained by declines in demand for commercial aircraft and construction machinery. Bookings fell 0.8 percent after a revised 1.4 percent increase in July. Excluding transportation equipment, orders rose 0.4 percent.

Fed Chairman Ben S. Bernanke this week said economic growth may not be strong enough to “substantially” bring down unemployment, indicating the central bank will be slow to drain the trillions of dollars it’s pumped into the economy. UAL Corp. is among companies cutting jobs on concern spending will fade as government stimulus wanes.

Fed Bank of Boston President Eric Rosengren said the central bank and government should maintain policies to support economic growth and bring down unemployment until a self- sustaining recovery is assured.

‘Elevated Unemployment’

“I’d like policy to try to stimulate the labor markets as much as possible,” Rosengren said in response to questions following a speech in Boston yesterday no teletrack payday loan. “But the reality is even with stimulated labor markets, we’re likely to see elevated unemployment for the next couple of years.”

September’s figures brought total jobs lost since the recession began in December 2007 to 7.2 million, the biggest decline since the Great Depression.

Payrolls were expected to drop 175,000, the median of 84 estimates in a Bloomberg News survey of economists. Job losses peaked at 741,000 in January, the most since 1949.

The bigger-than-forecast decline in September and the jump in the jobless rate are “disappointing,” Christina Romer, Obama’s chief economist, said yesterday in a Bloomberg Television interview. Even so, Romer said the administration was focusing on the overall trend of slowing job losses, which showed “we’re moving in a good direction.”

Yesterday’s report showed factory payrolls fell 51,000 after decreasing 66,000 in the prior month. The decline included a drop of 3,500 jobs in auto manufacturing and parts industries.

GM, Saturn

General Motors Co. this week said it would close the Saturn brand after Penske Automotive Group Inc. broke off discussions to buy the unit. Saturn dealers will have until October 2010 to wind down operations. The Detroit-based automaker said in June a Saturn sale would have saved 13,000 jobs and 350 dealerships.

GM had called back some workers after the government’s “cash-for-clunkers” plan cut further into inventories already diminished during the bankruptcy shutdown.

Payrolls at builders dropped 64,000 after decreasing 60,000. Financial firms decreased payrolls by 10,000, after a 25,000 decline the prior month.

Broad-Based Losses

Service industries, which include banks, insurance companies, restaurants and retailers, subtracted 147,000 workers after falling 69,000. Retail payrolls declined by 38,500. Government payrolls decreased by 53,000.

Economists surveyed by Bloomberg last month projected the jobless rate will reach 10 percent by late 2009 and average 9.7 percent for all of next year even as the economy expands at an average 2.6 percent pace in the second half of this year and 2.4 percent in 2010.

Yesterday’s report also showed companies cut working hours, pushing weekly earnings lower.

The average work week shrank to 33 hours in September, matching a record low, while average weekly earnings fell to $616.11.

Workers’ average hourly earnings were 2.5 percent higher than September 2008, the smallest gain since 2005.

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Japan’s jobless rate unexpectedly retreated in August from a record and household spending rose as the nation emerged from its worst postwar recession.

The unemployment rate fell to 5.5 percent from 5.7 percent in July, the statistics bureau said today in Tokyo. None of the 29 analysts surveyed by Bloomberg predicted a decrease. Spending by households unexpectedly rose 2.6 percent from a year earlier, the biggest jump in 19 months.

Today’s reports add to evidence this week showing the recovery may be sustained: business sentiment rose for a second quarter and industrial production gained for a sixth month. Economists say the revival is likely to be tepid as companies burdened with excess capacity cut spending and deepening deflation erodes profit.

“I wouldn’t be dancing in the street over that one, but I do think labor demand is turning,” said Richard Jerram, chief Japan economist at Macquarie Securities Ltd. in Tokyo. “You’re seeing it in the business confidence surveys, you’re seeing it in manufacturing overtime, and you’re starting to see it now in things like the new job offers.”

Investors shrugged off the reports. The Nikkei 225 Stock Average lost 2.1 percent at 9:59 a.m. in Tokyo, heading for its third weekly decline. The yield on the 10-year government bond fell three basis points to 1.26 percent. The yen traded at 89.53 per dollar from 89.58 before the reports, edging toward an eight-month high of 88.24 reached earlier this week.

Stronger Yen

The Japanese currency’s 7 percent gain in the past three months threatens to erode exporters’ repatriated earnings and make their products less competitive abroad.

Economists forecast the unemployment rate would climb to 5.8 percent and household spending would slip 0.2 percent.

Government incentives to buy electronics products as part of the previous government’s 25 trillion yen ($280 billion) stimulus package buoyed demand for televisions, personal computers and refrigerators, the bureau said.

“Consumers are realizing that things aren’t as bad as they thought,” said Naoki Iizuka, a senior economist at Mizuho Securities Co. in Tokyo. “Things will continue to improve, but for consumer spending to become sustainable we’re going to need a stronger job and wage market.”

More Employed

The number of employed rose by 290,000 from July, the first increase since January, the bureau said. A separate report showed the job-to-applicant ratio, a leading indicator of employment trends, stopped worsening for the first time since January 2008. The ratio stayed at a record low of 0.42, meaning there are only 42 positions for every 100 candidates.

The Bank of Japan’s quarterly Tankan business survey yesterday showed confidence among large manufacturers rose for a second straight quarter from a record low of minus 58 in March. The index gained to minus 33 from minus 48, still a level on a par with the previous recession in 2001.

That survey also showed big companies plan to cut spending at a faster pace than they anticipated three months ago and forecast profits will drop 22 percent in the year ending March. While labor demand improved from the previous Tankan, large manufacturers still reported having too many employees.

Some economists say the unemployment rate probably hasn’t peaked, as companies including Japan Airlines Corp. cut jobs even as the economy recovers. Fifteen months of wage declines are also likely to discourage consumers from spending.

Too Early

“It’s still too early” to say the worst is over for Japan’s workers, Masamichi Adachi, senior economist at JPMorgan Chase & Co. in Tokyo, said before today’s reports. “Companies still have too many employees and too much capacity.”

Japan Airlines, Asia’s most indebted carrier, said last month that it will cut 6,800 jobs as it plans the biggest reduction of routes in its history.

“Even when things start to get better, employers will delay hiring for some time,” said Azusa Kato, an economist at BNP Paribas in Tokyo. “Companies are still burdened with excess workers.”

The jobless rate will climb to 5.9 percent in the second quarter of 2010, according to economists surveyed by Bloomberg. Adachi said the current rate reflects Japanese businesses’ cultural reluctance to fire workers and the country’s strict labor laws.

That’s making it tough for graduates to get work.

“I used to be against using personal connections for job leads, but it’s been impossible to find anything through the normal channels,” said Yoko Kasai, 23, who finished four years of college in Japan and a year abroad in the U.K. “I didn’t think it was going to be this hard for my friends and I to land a job we want.”

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