US trade deficit widens in December

US trade deficit widens in December
By Simone Baribeau in Washington
Copyright The Financial Times Limited 2010
Published: February 10 2010 15:42 | Last updated: February 10 2010 15:42
http://www.ft.com/cms/s/0/2dae0fba-1659-11df-8d0f-00144feab49a.html


Oil demand drove the US trade deficit to its highest level in a year, the commerce department reported on Wednesday.

The trade gap widened, by $3.8bn from November, to $40.2bn in December. Petroleum imports jumped by $2.6bn as oil imports rose by 9 per cent and prices rose by 1 per cent on the month.

Overall trade activity picked up, but with the dollar value of imports and exports mostly cancelling each other out. Imports jumped $8.4bn from November to $182.9bn, driven by greater demand for industrial supplies, cars and car parts, and capital goods.

Exports jumped by $4.6bn to $142.7bn, driven by increases in industrial supplies, food, cars and car parts and capital goods.

”All the deterioration occurred in the petroleum category, with dollar gains in non-petroleum exports and imports largely offsetting each other,” said Joshua Shapiro, chief US economist at MFR.

The $3.8bn increase in the trade deficit took analysts by surprise. Median expectations of economists surveyed by Bloomberg showed a slight narrowing of the trade gap. The steep widening fell outside the consensus range and prior estimates of the commerce department, and may indicate that a downward revision to fourth-quarter economic growth figures is likely.

The growth in trade indicates a reawakening of the world economy, say analysts. “The robust trade flows are an indicator of both strong domestic and foreign demand for goods,” said Abiel Reinhart of JPMorgan Chase.

As trade volumes grow, some economists argue that a slightly wider trade deficit is better than a smaller deficit with less overall trade. But eventually, they say, the trade gap will have to shrink.

“From a longer-term domestic point of view, as the US saving rate rises, and consumer spending declines as a percentage of GDP back toward a more sustainable share, an important offset ... will be a narrower trade deficit, in part owing to less imports of consumer goods,” said Mr Shapiro.

It is not yet clear when the trade gap will reach such a long-term sustainable level. “Whether the cyclical narrowing of trade imbalances during the global recession persists into recovery remains to be seen,” says Alan Levenson, chief economist at T. Rowe Price.