By Lucia Mutikani
WASHINGTON (Reuters) - The U.S. trade deficit widened in September as imports rose to their highest level in almost a year and exports fell for a third consecutive month, suggesting the third-quarter growth estimate will probably be lowered.
Other data on Thursday painted a less upbeat picture of the labor market than had been suggested by last week's sturdy October payrolls report. First-time applications for jobless benefits fell last week, but the decline in claims for the week ended November 2 was smaller than previously reported.
"The reports reveal a slightly weaker path than we expected for exports and claims levels, which has modestly downgraded the outlook for the economy," said Mike Englund, chief economist at Action Economics in Boulder, Colorado.
The trade gap increased 8.0 percent to $41.8 billion, the largest since May, the Commerce Department said. That compared to economists' expectations for a $39.0 billion shortfall.
When adjusted for inflation, the deficit on the trade balance widened to $50.4 billion, also the biggest since May, from $47.4 billion the prior month.
This measure goes into the calculation of gross domestic product and its rise in September suggested the government will probably trim its initial third-quarter GDP estimate by between 0.1 and 0.2 percentage point, according to economists.
Trade was reported to have contributed 0.31 percentage point to the economy's 2.8 percent annualized growth pace in the July-September quarter.
In a separate report, the Labor Department said initial claims for state unemployment benefits fell 2,000 to a seasonally adjusted 339,000.
However, claims for the prior week were revised to show 5,000 more applications received than previously reported. The four-week moving average for new claims, which irons out week-to-week volatility, dropped 5,750 to 344,000.
"This report suggests some sluggishness on the part of the labor market recovery," said Millan Mulraine, senior economist at TD Securities in New York.
U.S. financial markets were little moved by the trade and jobless claims data, taking their cue from a Senate panel confirmation hearing of Federal Reserve chairman nominee Janet Yellen for clues on the near-term path of monetary policy.
Yellen made plain she would press forward with the Fed's ultra-easy monetary policy until officials were confident a durable economic recovery was in place that could sustain job creation.
The Fed last month stuck to its $85 billion monthly bond buying program aimed at stimulating the economy through low interest rates. No change is expected until early 2014 as the economy struggles to gain speed and inflation remains benign.
The lack of price pressures was underscored by a second report from the Labor Department showing unit labor costs fell at a 0.6 percent rate in the third quarter after rising at a marginal 0.5 percent pace in the prior quarter.
Sluggish demand was also highlighted in Wal-Mart Stores' third-quarter results, which showed another quarterly decline in U.S. comparable sales.
JOBS RECOVERY STILL GRADUAL
Lackluster domestic demand is preventing the labor market from generating stronger job growth that would decisively lower the unemployment rate. Employers added 204,000 new jobs last month, but a 16-day government shutdown temporarily pushed the jobless rate up by a tenth of a percentage point to 7.3 percent.
While trade has supported the economy's recovery, slowing global demand is eroding export growth. Exports slipped 0.2 percent to $188.9 billion in September, the third straight month of declines.
"Exports are flat because most of the rest of the world is barely growing," said Michael Montgomery, a U.S. economist at IHS Global Insight in Lexington, Massachusetts.
Imports rose 1.2 percent to $230.7 billion, the highest level since November last year. Imports of automobiles hit a record high.
But with consumer spending having slowed significantly, some of the imported goods could end up piling up in warehouses.
That could make businesses reluctant to keep on rebuilding stocks and the slowdown in inventory accumulation would undercut fourth-quarter GDP growth.
Imports from China increased in September, lifting the contentious U.S. trade deficit with China to a record $30.5 billion.
(Reporting By Lucia Mutikani; Editing by Andrea Ricci)