US trade gap narrows on falling oil imports

US trade gap narrows on falling oil imports
By Alan Rappeport in New York
Copyright The Financial Times Limited 2010
Published: March 11 2010 14:35 | Last updated: March 11 2010 15:24
http://www.ft.com/cms/s/0/1db7d8b4-2d12-11df-8025-00144feabdc0,s01=1.html


Plunging domestic demand for oil and foreign cars unexpectedly narrowed the US trade gap in January, official figures showed on Thursday, lifting hopes for stronger economic growth in the first quarter.

Separately on Thursday, the labour department said that new claims for jobless benefits slipped lower last week, offering a ray of hope that stubbornly high unemployment levels are slowly easing.

The trade deficit fell by 6.5 per cent to $37.3bn, according to the commerce department, clashing with economists’ predictions that the gap would widen.

In January, both imports and exports declined after months of trending higher. Exports fell by $500m to $142.6bn from the prior month, while imports dropped by $3.1bn to $180bn. The fall in exports was the first since last April.

“While we believe the recent rates of increase are unsustainable, especially for imports, trends do not usually change as suddenly as this,” said Ian Shepherdson, chief US economist at High Frequency Economics. “We are happy to see the deficit drop in January but it is not representative of the true picture.”

The narrowing trade deficit was fuelled in January by a sharp decline in oil imports, which fell to their lowest level since 1999 and accounted for two-thirds of the shift. US appetite for foreign cars, computers and televisions also declined during the month.

Alan Ruskin, a strategist at RBS Securities, called the trade data “encouraging” and noted that weather and the unusual strength in exports and imports in December contributed to the slowing pace of trade.

Global trade stalled during the worst of the recession but has rebounded steadily during the last year. Economists expect that momentum to return as the economic recovery gains momentum.

“The latest survey data suggest that the rebound in exports and imports has much further to run yet,” said Paul Dales, senior US economist at Capital Economics, noting that erratic shifts in car and aircraft demand impacted Thursday’s data. “The problem is that because the level of imports is larger than exports, if both increase at roughly the same pace the trade deficit will widen again.”

Meanwhile, the US trade gap with China, its most politically sensitive trade partner, edged higher to $18.3bn. However, deficits with the European Union, Japan and Mexico eased.

“The China balance typically increases in January and was flat, so nothing new here to inflame existing trade tensions,” Mr Ruskin said.

Weakness in the labour market continues to create anxiety for US workers. Figures showed on Thursday that initial jobless claims fell by 6,000 to 462,000 last week. That was a bigger decline than analysts had expected. However, those continuing to receive benefits grew by 37,000 to 4.56m.

Last week, the labour department reported that the US economy shed 36,000 jobs in February, with the unemployment rate holding steady at 9.7 per cent.

“We have yet to get a signal from the claims data that employment has begun to expand on a sustainable basis,” said John Ryding and Conrad DeQuadros, economists at RDQ Economics. “Initial claims need to fall towards the 400,000 mark to signal the emergence of sustained job creation.”