US trade gap shrinks sharply as exports rise

US trade gap shrinks sharply as exports rise
By Alan Rappeport in New York
Copyright The Financial Times Limited 2009
Published: April 9 2009 16:15 | Last updated: April 9 2009 16:15
http://www.ft.com/cms/s/0/85a785e2-24fc-11de-8a66-00144feabdc0.html?nclick_check=1


The US trade gap plunged by 28.3 per cent in February to $26bn, the lowest level in nearly 10 years as Americans’ once voracious demand for the world’s goods continued to collapse.

The monthly decline was the sharpest since September 1996 and was pulled down by declining imports of goods and services, which fell for the seventh consecutive month, dropping by 5.1 per cent to $152.7bn from $160.9bn in January. Exports rose by $2bn, or 1.6 per cent, the first increase since last July, commerce department figures showed on Thursday.

The rise in US exports was fuelled by increases in sales of consumer goods, cars and parts. The fall in imports was due to weaker demand for industrial supplies and capital goods. On the year in February exports are off by 16.9 per cent and imports are down by 28.8 per cent.

The figures surprised analysts’ who on average were expecting the trade gap to remain flat at $36bn, previously a six-year low.

“This is potentially a very big deal,” said Alan Ruskin, strategist at RBS Greenwich Capital. “This does suggest that global rebalancing has taken another big step forward.”

The narrowing trade gap was a bright spot amid grim recent economic data. A smaller deficit could present less of a drag on economic growth, although economists said it would be no panacea for the US economy’s problems.

“This will not be enough to stop GDP from falling altogether,” said Paul Dales, US economist at Capital Economics. “But, along with the improvement in consumption, it will mean that the rate of contraction has eased.”

If trade of goods and services maintain these levels in March, Mr Dales said, it could add 2.5 per cent to the annual rate of US economic growth in the fourth quarter, easing the recent contraction. Last month commerce department data showed that the US economy contracted at an annual rate of 6.3 per cent in the fourth quarter of last year, its fastest rate since 1982.

Separately on Thursday, labour department figures revealed that new US jobless claims eased last week but the number of workers continuing to claim unemployment benefits hit a record high as companies continued to shed workers.

Initial claims fell to 654,000 for the week ending April 4 from a revised 674,000 the prior week. The results were better than consensus estimates of 660,000 new claims.

But the number of people continuing to claim unemployment benefits through the last week of March rose by 95,000 to 5.84m, the highest total since tracking began in 1967. Official figures last week showed that US unemployment soared to 8.5 per cent last month, its highest level since 1983.

“The high level of initial jobless claims and the rapid rise in continuing jobless claims suggest that payrolls will probably fall another large amount in April, and that unemployment is continuing to rise,” said Abiel Reinhart, an economist at JPMorgan Chase.