US trade deficit in surprise plunge to 9 year low
Fri, Apr 10, 2009

WASHINGTON, USA - The US trade deficit contracted more than expected in February to a nine-year low on a big recession-driven fall in imports in the world's largest economy and an unexpected rebound in exports.

The deficit dropped for the seventh consecutive month -- by a steep 28.3 percent to 26 billion dollars from a revised 36.2 billion dollars in January, the department said in its monthly trade report.

It was the biggest drop in more than 12 years, with the deficit at its lowest level since November 1999, surprising most analysts who had expected the gap to shrink just to 36.5 billion dollars.

"The trade deficit is disappearing faster than a speeding bullet and that bodes well for growth," said Joel Naroff, chief economist with Naroff Economic Advisors.

He expected the narrowing deficit to have eased the economic contraction in the first quarter of 2009 after the negative 6.3 percent growth posted in the last quarter of 2008.

Reeling from a recession since December 2007, the United States has reduced its trade deficit by more than half since July last year, the latest data showed.

A surprise increase in exports coupled with a sharp decline in imports caused the outflow to narrow sharply in February

Exports sprang back in February after six months of decline, increasing by 1.6 percent to 126.8 billion dollars and comprising mostly consumer goods, automotive vehicles, foods, feeds and beverages.

Imports on the other hand continued to fall -- for the seventh consecutive month -- by 5.1 percent to 152.7 billion dollars.

While the export improvement was good news for Americans, analysts cautioned against any indications of an export-led recovery from prolonged recession.

The data "indicates that the steepest export declines are behind us but given the weak state of overseas economies, it is too early to be thinking about a sustained export rebound," said IHS Global Insight chief US economist Nigel Gault. "The US recovery will not be export-led."

Alan Tonelson, a research fellow at the US Business and Industry Council, agreed.

"A recession-driven drop in the trade deficit unfortunately can't restore the US economy's long-term health," he said.

Washington, he added, should change America's "failed trade policies to start curing the nation's structural addiction to under-producing, over-importing, and over-borrowing."

Elsa Dargent of Natixis also cast doubt on the prospect of a persistent drop in the trade deficit.

"The narrowing of the trade deficit is very surprising and is very unlikely to last," she said.

Furthermore, with oil prices unlikely to plunge, shrinkage of the deficit will be more difficult, said Aaron Smith, senior economist for Moody's Economy.com

A narrowing petroleum deficit has accounted for about three-fifths of the almost 36-billion-dollar drop in the trade deficit over the last year, Smith said.

The smaller import volumes in the trade data also reflected lower spending by US businesses on capital equipment, a major inventory adjustment by US purchasers and lower consumer spending.

"The import decline shows how the US is passing on its demand weakness to the rest of the world," Gault said, citing the sharp fall in US trade deficits with major exporters like China, Germany, and Japan over the past 12 months amid weakening US import demand.

The politically sensitive deficit with China fell to its lowest level since February 2006 -- to 14.2 billion dollars from 20.6 billion dollars in January.

Exports to China increased to 4.7 billion dollars while imports decreased to 18.9 billion dollars.

The deficit with Canada, the top US trading partner, fell to a decade low -- to 1.8 billion dollars from 2.5 billion dollars in January, the department said.

The deficit with Japan fell to a 25-year low at 2.2 billion dollars.

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