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U.S. Trade Gap Widens, Sending Mixed Signals About Economy
Wednesday, 10 February 2010 00:00

The U.S. trade deficit widened in December, suggesting that the economy didn't grow quite as strongly in the fourth quarter as first thought, but also indicating that global trade is accelerating as the world emerges from a deep recession.

The U.S. trade deficit shrank last year to $380.7 billion, a 45% drop from 2008, the Commerce Department said Wednesday, as both imports and exports plunged amid the global downturn. Even the U.S. trade deficit with China narrowed last year.

The December figures, however, show U.S. exports and imports are both growing sharply again, a sign of economic vitality, with the deficit growing simply because the U.S. is importing more goods to feed domestic growth—in part to rebuild inventories depleted during the recession—than it is selling abroad. Most of the import surge was accounted for by a larger volume of oil imports.

The trade deficit in December rose to a seasonally adjusted $40.2 billion, up from $36.4 billion in November. Adjusted for inflation, the deficit rose to $43.7 billion in December, up from $40.9 billion the month before.

Economists had predicted December would bring a $35.8 billion shortfall, seasonally adjusted.

The government has estimated that in the fourth quarter net exports added 0.5 percentage point to the 5.7% annual growth in gross domestic product, the broadest measure of goods and services produced by the economy. The larger than previously estimated trade deficit for December is expected to mean a slight reduction in that growth rate when the figure is revised at month's end because a wider trade deficit makes reported GDP smaller.

IHS Global Insight predicted fourth-quarter GDP would be revised down to 5.6% from the government's previously reported 5.7% annualized growth. Nomura Global Economics expected it to be revised to 5.5%, and Morgan Stanley economist thought it would be revised to 5.6%.

"It is true that the wider deficit will shave a couple of tenths off...growth, but it is hard to describe the trade figures as bad news, since they show a continuing robust rebound in world trade," said Nigel Gault, an IHS Global Insight economist.

Exports increased 3.3% to $142.7 billion on gains in industrial materials, capital goods (largely aircrafts) and automotive products. Imports climbed 4.8% to $182.9 billion, largely from the boost in oil imports. Capital goods and auto imports also rose. As long as increases in imports continue to surpass that of exports, trade won't make a positive contribution to U.S. growth.

Continued expansion in emerging economies may help boost exports in the future, but in the near term economists agreed that imports were likely to continue gaining speed at a faster pace than exports, weighing down GDP growth. That prompted Morgan Stanley economists to also lower their first quarter forecast of GDP to 2.8% from 3%.

Wall Street Journal, 2/10/2010