The US trade deficit shrank for the fourth straight month in August, falling to the lowest level since January as exports rose to an all-time high.

The deficit dropped 0.5 per cent in August to $40.1 billion, compared to a revised $40.3 billion in July, the Commerce Department said yesterday.

Exports increased 0.2 per cent to a record $198.5 billion, aided by increased sales of petroleum, telecommunications equipment and industrial engines. Imports also rose by a smaller 0.1 per cent to $238.6 billion.

Even with the falling deficit the past four months, the imbalance so far this year is running 4.2 per cent higher than the same period in 2013. A larger deficit acts as a drag on the economy because it means more money going to foreign companies.

The politically sensitive trade deficit with China edged down 2.2 per cent to $30.2 billion, only slightly below the all-time high of $30.9 billion set in July. The deficit with China is on track to set another record for the entire year, putting more pressure on Congress and the Obama administration to take steps to curb what China's critics see as unfair trade practices.

US manufacturers say that China is manipulating its currency to gain trade advantages over US companies. They say China undervalues the yuan to make the goods it manufactures cheaper when they are exported, and American products more expensive in China.

A higher trade deficit subtracts from economic growth because it usually means that foreign companies sell more in this country while US producers see fewer sales in overseas markets.

Through August, the trade deficit totalled $335.2 billion, compared with $321.7 billion for the same period last year, when the deficit for the whole year totalled $476.4 billion, 11.4 per cent lower than in 2012. For this year, many economists believe the trade deficit will be slightly higher than in 2013, reflecting in part a stronger US economy attracting more imports.

The decline in the deficit in 2013 reflected in part a boom in US energy production that has reduced America's dependence on foreign oil while boosting US petroleum exports to a record high.

In August, US exports of petroleum were up 2.2 per cent to $14.1 billion while petroleum imports fell 3.8 per cent to $27.2 billion. So far this year, petroleum exports are running 16.9 per cent above the level of a year ago, putting the country on track to set another record for petroleum exports.

Meanwhile, US employers added 248,000 jobs in September, a burst of hiring that helped drive down the unemployment rate to 5.9 per cent, the lowest since July 2008.

The Labour Department report yesterday also showed that employers added a combined 69,000 more jobs in July and August than the government had previously estimated.

The unemployment rate fell from 6.1 per cent in August and is now close to 5.5 per cent, which many economists consider a healthy level. The lower rate, combined with the surge in hiring, could ratchet up pressure on the Federal Reserve to raise its benchmark interest rate earlier than expected. Most economists have predicted that the Fed would start raising rates in mid-2015.

The job gains were broad-based and included many higher-paying industries. Professional and business services, which includes engineers, accountants and architects, added 81,000 jobs, the most in seven months. Construction companies added 16,000 jobs, manufacturing 4,000.

Economists noted, though, that average hourly wages didn't budge last month, a surprising trend in light of the healthy job growth. Joseph Brusuelas, chief economist for the consulting firm McGladrey, suggested that more jobs in better-paying industries haven't yet translated into higher pay because employers still have so many applicants to choose from.

The number of unemployed fell in September by 329,000 to 9.3 million. Most of them found jobs. But nearly 100,000 stopped looking for work. Their exodus lowered the percentage of Americans working or looking for work to 62.7 per cent, the lowest proportion since February 1978.

A broader measure of unemployment that includes part-time workers who would prefer full-time jobs, as well as those who have stopped searching, fell to 11.8 per cent last month from 12 per cent in August.

September's job gain means that more Americans are earning paychecks and can spend more. The annual pace of economic growth is expected to remain above 3 per cent for the rest of the year. Business investment is picking up, and consumer spending is growing at a steady but modest pace.-Reuters