By Don Miller
The U.S. trade deficit narrowed for a record sixth consecutive month in January to the lowest level in six years as imports and exports both slumped on weak domestic demand, government data showed on Friday.
Weak American demand for everything from oil to automobiles led to shrinking imports, which fell faster than exports, reducing the gap by 9.7% to $36 billion, compared to the $38 billion Wall Street expected, the Commerce Department said Friday in Washington.
"The narrowing reflects the ongoing economic downturn. U.S. consumers are pulling back and that's resulting in fewer imports while exports are falling," Mark Zandi, chief economist at Moody's Economy.com in West Chester, Pa., told Reuters. "It reflects how bad economic conditions are everywhere."
For the first time since 1982, total world trade is expected to decline this year as businesses and consumers cut back on spending in response to relentlessly poor economic news. Even China chimed in early this week reporting its exports plunged 25.7% in February from a year earlier, while imports declined 24.1%.
The narrower gap is bad news for the U.S. economy because it mainly reflects a drop in petroleum prices. Excluding petroleum, the deficit was little changed at $21.3 billion.
The numbers used to calculate gross domestic product (GDP), which eliminates the influence of prices, showed the trade deficit widened to $44 billion, the most since October, Bloomberg News reported.
Imports slid 6.7% to $160.9 billion, the least since March 2005, led by a $4.3 billion drop in crude oil purchases. Foreign automobile sales plunged by $3.3 billion.
The Organization of Petroleum Exporting Countries (OPEC) deficit dropped to $3.9 billion, the smallest since November 2003, and the gap with Japan plummeted to the lowest level since 1998.
The shortfall with the European Union was sliced by half from $7 billion in December to $3.5 billion in January.
The largest concern for the United States is the dive in exports, as foreign demand for American-made goods slackened. Exports plunged 5.7% to $124.9 billion, the lowest in two and a half years, as sales of automobiles, computer chips, telecom equipment and drilling gear dropped, the report showed.
U.S. exports of food, feeds and beverages were up marginally in January, but important categories like consumer goods, capital goods and industrial supplies all showed declines.
"It's not a good report for U.S. manufacturing," Julia Coronado, a senior U.S. economist at Barclays Capital Inc. (BCS) in New York, told Bloomberg. "This is certainly a sign that the global weakness is feeding into the domestic economy through the export channel."
After shrinking at an annual rate of 6.2% in the fourth quarter of 2008 – the most since 1982 – U.S. GDP is forecast to contract further this quarter. The collapse in U.S. exports led to a widening in the trade gap that subtracted 0.5% from growth last quarter.
News and Related Story Links: