U.S. Economy: Trade Gap Narrows to Nine-Year Low

By Timothy R. Homan

April 9 (Bloomberg) -- The U.S. trade deficit tumbled in February to the lowest level in nine years as collapsing demand from consumers and companies reverberated around the globe.

The gap narrowed to $26 billion, less than anticipated, from a revised $36.2 billion in January, the Commerce Department said today in Washington. Imports plunged for a seventh consecutive month, leading to declines in the deficits with Japan and China, while exports climbed from a two-year low.

The shrinking deficit is another piece of evidence that the U.S. economic slide eased in the first quarter; Morgan Stanley economists now project gross domestic product dropped at a 5 percent annual pace, less than their previous forecast of 5.9 percent. At the same time, dwindling demand for imports may be bad news for nations that depend on American consumers for their own growth.

“It’s an indication of the extent to which we’ve been passing on some of our demand decline to the rest of the world,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. “That is why we’ve seen such disastrous declines in growth numbers in Asia. They have been relying on U.S. spending, and U.S. spending just isn’t there any more.”

Separate figures from the Labor Department today showed the cost of goods imported into the U.S. in March rose less than forecast as companies in China and Japan cut prices to stem the slump in overseas sales. Other figures from Labor showed the number of Americans filing first-time claims for unemployment insurance exceeded 600,000 for a 10th consecutive week.

Stocks Jump

Stocks rallied, propelled by better-than-estimated earnings at Wells Fargo & Co. The Standard & Poor’s 500 index was up 2.6 percent at 846.85 at 11:03 a.m. in New York. Treasury securities fell, sending the yield on the benchmark 10-year note up to 2.92 percent from 2.86 percent late yesterday.

The trade gap was smaller than the lowest estimate of economists surveyed by Bloomberg News. The median of 70 projections called for an unchanged reading at $36 billion. Forecasts ranged from deficits of $30 billion to $38.9 billion.

February’s gap was the smallest since November 1999.

Imports fell 5.1 percent to $152.7 billion, the lowest since September 2004. Demand for foreign-made cars slumped to the lowest level since October 1996, as purchases of Japanese autos were cut almost in half. The trade gap with Japan was the smallest since 1984.

American demand for imported consumer goods other than automobiles fell by $1.4 billion in February as purchases of toys, furniture, clothing, appliances and televisions all declined.

Gap With China

The trade gap with China decreased to $14.2 billion, the smallest in three years.

The cost of goods imported into the U.S. climbed 0.5 percent in March, reflecting an 11 percent jump in petroleum, the report from Labor showed. Excluding oil, prices fell 0.7 percent for a third consecutive month as goods from China cost 0.6 percent less and those from Japan fell 0.1 percent.

“What’s bad news for Asia is good news for the American economy,” said David Sloan, a senior economist at 4Cast Inc. in New York. “We are seeing Asian exports fall off a cliff.”

U.S. exports climbed 1.6 percent to $126.8 billion as sales of pharmaceutical supplies, autos and telecommunications equipment improved, today’s trade report showed.

Waning Support

Federal Reserve officials last month said, “it was widely agreed that exports were not likely to be a source of support for U.S. economic activity in the near term,” according to minutes of the March 17-18 meeting released yesterday. “Several participants said that the degree and pervasiveness of the decline in foreign economic activity was one of the most notable developments since the January meeting,” the minutes showed.

Forecasts are calling for a decline in global trade, sapping overseas demand for American-made goods. The World Bank last month projected trade will fall 6.1 percent worldwide. Earlier in March the World Trade Organization predicted a 9 percent drop.

After eliminating the influence of prices, which are the numbers used to calculate gross domestic product, the trade deficit dropped to $35.6 billion, the lowest level since May 2001. The economy shrank at a 6.3 percent rate in the last three months of 2008, the most since 1982.

Weak sales are contributing to job cuts as firms rein in labor costs to weather the recession, now in its second year. 3M Co., the maker of more than 55,000 products from Post-it Notes to electronic road signs, said it cut 1,200 workers, or about 1.5 percent of its workforce, from its payrolls in the first quarter.

Employers cut 663,000 workers from payrolls in March, and the jobless rate surged to 8.5 percent, the highest level in more than a quarter century, the Labor Department reported last week.

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net