US trade deficit narrows

THE US trade deficit narrowed unexpectedly in January as imports and exports declined and overall volume fell for the first time in five months, the government reported Thursday.

The Commerce Department said the trade deficit shrank to a seasonally adjusted US$37.3 billion, from US$39.9 billion dollars in December, revised lower from US$40.2 billion.

The January deficit surprised most analysts who had expected the trade shortfall would increase to US$41.0 billion .

"The recent roller-coaster ride in trade news continues with this month's release, though the overall trend of slowly growing trade volume continues," said Christopher Cornell at Moody's Economy.com.

Imports dropped 1.7 per cent to US180.0 billion, including the lowest level of oil imports in more than a decade, while exports slipped 0.3 per cent to US$142.7 billion.

"Imports rose at a slower pace versus exports, which shows potentially slower economic activity," Briefing.com analysts said in a client note.

Natixis analyst Inna Mufteeva agreed the data clouded the outlook for the country's fragile recovery from severe recession.

"Apart from the fact of the deficit tightening, there is not much to cheer about in today's report as both imports and exports decreased after several consecutive months of rises," Mufteeva said.

"Indeed, improvement in US consumption did not impress much the importers as consumer goods imports dropped 2.3 per cent in January," she added.

Consumer spending accounts for two-thirds of US economic activity and is considered key to sustainable growth in a budding recovery that so far has been propped up by government spending.

US trade volume with the rest of the world declined for the first time since August, by 1.1 per cent from December, the data showed.

"We are inclined to view it as a seasonal adjustment or weather story, or both, and we expect trade flows to rebound strongly in February," said Ian Shepherdson at High Frequency Economics.

The lower January deficit was partly due to crude oil imports, which slumped to their lowest level since February 1999, at 245 million barrels.

The trade gap in petroleum products, however, again weighed heavily on the trade balance, though the deficit narrowed to US$22.7 billion in January from US$23.6 billion the previous month.

The average price of imported oil jumped to 73.89 dollars, its highest peak since October 2008.

In unadjusted data, the trade deficit with Canada, the largest US trading partner, grew to 3.9 billion dollars, marking the biggest gap since October 2008.

The deficit with Mexico narrowed to US$4.6 billion from US$5.2 billion .

The politically sensitive trade deficit with China barely budged, rising to US$18.3 billion from US$18.1 billion in December.

"Do not expect the situation to last," warned Moody's Cornell, after China reported February trade data Wednesday showing exports soared for the third straight month and at their fastest pace in three years.

"These will be reflected in the US trade data for February, set for release next month," he said.

The country's massive trade gap with China, by far its largest with any trading partner, is an underlying source of friction in bilateral trade ties.

Critics and some lawmakers accuse Beijing of keeping its yuan currency undervalued to maintain a trade advantage.

The US trade deficit narrowed to May lows with two other major trading partners: to US$3.3 billion with Japan and US$2.8 billion with the European Union.

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