However, the politically sensitive deficit with China rose to a new record of $23 billion, pushed higher by a flood of Chinese-made televisions, cell phones and toys being imported to stock American store shelves for Christmas.
The overall deficit declined 6.8 percent to $64.3 billion in September after it had hit an all-time high of $69 billion in August. The drop of $4.7 billion was the biggest one-month decline since February 2001.
In other news, the number of Americans filing new claims for unemployment benefits fell by 20,000 to 308,000 last week.
The big improvement in September's trade deficit reflected a $3.1 billion fall in America's foreign oil bill, which declined 10.5 percent, to $26.3 billion. The price of imported oil, which had set a record in August, dropped by $3.60 per barrel to an average for imported crude of $62.52 in September.
That decline helped to push total imports down by 2.1 percent to $187.5 billion in September while U.S. exports edged up 0.5 percent to an all-time high of $123.2 billion.
Even with the improvement, the deficit is on track to set a record for a fifth consecutive year. Through September, the deficit is running at an annual rate of $781.6 billion, surpassing last year's all-time high of $716.7 billion.
Democrats, who took control of Congress in Tuesday's elections, sought to make President George W. Bush's trade policies an issue in the campaign, arguing that the administration had failed to do enough to protect American workers against unfair foreign competition.
The critics point specifically to China, contending that Beijing is unfairly depressing the value of its currency to make Chinese goods cheaper in U.S. markets while making American products more expensive in China.
Treasury Secretary Henry Paulson has pledged to pursue this issue with the Chinese and has created a new high-level dialogue with top Chinese officials. They'll have their initial meeting next month in Beijing.
For September, the deficit with China increased by 4.6 percent to a monthly record of $23 billion, reflecting a jump in Chinese imports to a record $27.6 billion. That gain reflected big increases in imports of Chinese televisions and VCRs, cell phones and toys and games.
So far this year, the deficit with China is running at an annual rate of $221.7 billion, on track to surpass last year's $202 billion imbalance, which had been the biggest deficit ever with a single country.
The rise in U.S. exports for September reflected big gains in sales of commercial aircraft, railway equipment and industrial engines.
In addition to the drop in America's foreign oil bill, imports of telecommunications equipment, computers and autos also fell in September.
America's deficit with Canada, the country's biggest trading partner, dropped to $5.7 billion in September, down from $6.1 billion in August. The deficit with the 25-nation European Union fell to $7 billion, down from $11 billion in August.