Plus: Consumer Sentiment Rises and Jobless Claims Plummet.

U.S. Trade Gap Narrows in October

The United States trade deficit narrowed in October to the lowest level this year, reflecting a drop in imports that should help give the nation’s economy a boost.

The trade gap shrank by 1.6 percent to $43.5 billion, down from $44.2 billion (revised) in September, according to the U.S. Department of Commerce last week. The median forecast in a Bloomberg News survey of 80 economists projected the deficit to rise to $43.9 billion from a previously reported $43.1 billion in September.

Both imports and exports declined in October, with imports falling at a slightly faster pace. Exports of goods and services decreased from $180.6 billion in September (revised) to $179.2 billion in October, led by a $1.3 billion drop in industrial supplies and materials. Meanwhile, imports dropped from $224.8 billion to $222.6 billion, led by a $3.6 billion drop in industrial supplies and materials.

Also, both imports and exports of capital goods set records in October, suggesting businesses are gearing up operations.

However, the U.S. trade deficit with China widened to $28.1 billion in October, compared with $25.7 billion in the same month last year. October imports from China were the highest on record.

The smaller trade deficit is positive for fourth-quarter economic growth, as it suggests more domestic demand is being met by U.S. production. Overall, the U.S. trade deficit has narrowed for four consecutive months.

Holidays Push Consumer Sentiment to 6-Month High

An index of consumer sentiment rose to its highest level in six months in early December. The Thomson Reuters/University of Michigan gauge on consumer confidence climbed to 67.7 in the preliminary reading for December — the highest level since June — compared with 64.1 in November.

The median estimate of 73 economists surveyed by Bloomberg News called for a reading of 65.8.

Consumers’ assessments of current and future economic and financial conditions also rose to their highest since June. Improved confidence could lead Americans to spend more readily, which would add to the recent momentum gained from strong retail sales and factory output.

Still, the sentiment gauge, which covers how consumers view their personal finances as well as business and buying conditions, averaged about 87 in the year prior to the start of the most recent recession.

“There’s still a long way to go before consumer confidence that would be compatible with strong consumer spending, with the index still below the levels seen in the first half of the year,” Vassili Serebriakov, a currency strategist at Wells Fargo, said in a research note. “But it’s somewhat encouraging that confidence is improving and that adds to the list of positive U.S. data.”

Jobless Claims Plunge to 9-Month Low

New initial jobless claims decreased in the latest week reported, continuing a series of drops in recent weeks. According to the U.S. Department of Labor, seasonally adjusted unemployment claims for the week ending December 3 decreased by 23,000 to a total of 381,000, the lowest level since late February, down from the previous week’s upwardly revised total of 404,000. The four-week moving average dropped by 3,000 to 393,250.

The latest weekly data exceeded expectations, as economists polled by MarketWatch had forecast the seasonally adjusted total to fall to 393,000 for the week, while economists surveyed by Reuters expected the total to drop to 395,000.

“The downward trend in unemployment benefit applications bolsters the view that the economy has improved from its spring slump, when many feared another recession was likely,” the Associated Press says. “Consumer confidence is up, retailers reported a strong start to the holiday shopping season and the unemployment rate fell last month to its lowest point in two and a half years.”

The weekly jobless rate must consistently remain below 400,000 for labor market conditions to become healthier. Despite the latest improvements, there are rising concerns about the economic effects of the European debt crisis, which could damage U.S. export rates and reduce overseas profits.

“A decrease in firings may foreshadow bigger gains in hiring that will help Americans gain enough confidence in the economic recovery to sustain the pickup in holiday spending into 2012,” Bloomberg News reports. “Nonetheless, the specter of a slump in Europe brought on by the debt crisis and government haggling over the U.S. budget loom as obstacles to bigger increases in employment.”