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Annual Trade Deficit Shrinks For First Time Since 2001

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Bloomberg News

Published: February 15, 2008

The U.S. trade deficit shrank more than forecast in December and showed the first annual drop since 2001 as the faltering economy eroded demand for imported autos and Chinese-made consumer goods.

The gap narrowed 6.9 percent from November to $58.8 billion, the Commerce Department said Thursday in Washington. Imports fell 1.1 percent, while exports increased 1.5 percent, aided by stronger growth abroad.

While the slowdown in consumer spending is pushing the economy closer to a recession, the drop in imports probably will lead the government to increase its estimate of fourth-quarter gross domestic product. A weaker dollar and continued expansions in Europe and Asia may forestall a deeper slump at U.S. manufacturers.

"The trade balance is going to continue to be a support for the economy," said David Resler, chief economist at Nomura Securities International Inc. in New York. "The drop in imports is probably consistent with the view the domestic economy is turning quite soft."
Federal Reserve Chairman Ben Bernanke pledged Thursday to provide "adequate insurance" against risks to economic growth. He told the Senate Banking Committee that the Fed will act in a "timely manner" and said export growth "should continue to provide some offset to the softening in domestic demand."

Economists had forecast the deficit would contract to $61.5 billion, according to the median of projections in a Bloomberg News survey. Estimates of the deficit ranged from $57 billion to $66.5 billion.

The dollar fell against the euro after Bernanke's remarks, while yields on 10-year Treasury notes remained higher.

A separate report from the Labor Department showed claims for unemployment benefits fell for a second week, while staying in a range consistent with a slowing job market.
Initial jobless claims decreased by 9,000 to 348,000 in the week ended Feb. 9, from 357,000 a week earlier. The four-week moving average of claims, a less volatile measure, rose to the highest level since October 2005.

"We have gotten some disappointing news, but claims data is very solid," Michael Darda, chief economist of MKM Partners in Greenwich, Conn., said in a television interview. "It is telling us that we are probably not in a recession and the labor market is not listing dramatically."

For all of last year, the trade deficit shrank 6.2 percent to $711.6 billion.

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