By Jason Simpkins
Managing Editor
Money Morning
The trade gap unexpectedly narrowed in February to its lowest level in nearly a decade, an indication that the U.S. economy may not have shrunk in the first quarter as much as analysts anticipated.
The trade gap shrank 28% to $25.97 billion from a revised $36.2 billion in January, the U.S. Department of Commerce reported. That's the biggest drop since October 1996, and it made February's trade gap the smallest since November 1999.
The main force behind the decline was a 5.1% decline in imports that helped trim deficits with Japan and China. Imports fell to $152.7 billion, while exports rebounded from a two-year low, jumping 1.6% to $126.8 billion.
"We are seeing Asian exports fall off a cliff," David Sloan, a senior economist at 4Cast Inc. told Bloomberg. "What's bad news for Asia is good news for the American economy."
The deficit with Japan was cut by about half, to $2.21 billion from $4.30 billion, and the deficit with China fell to $14.20 billion from $20.57 billion in January. The trade gap with the euro area fell to $2.37 billion from $3.37 billion.
U.S. purchases of foreign-made consumer goods, such as cars, toys, and electronics, plunged by $1.39 billion, while food and feed imports fell $135 million.
Crude oil imports decreased to $10 billion from $11.95 billion in January, as the price of oil approached $30 a barrel in mid-February. The average price per barrel of imported crude in fell by 59 cents to $39.22 from $39.81.
The smaller trade gap could persuade economists to reduce the projected drop in first-quarter gross domestic product (GDP). U.S. GDP contracted by 6.3% in the last three months of 2008, and most analysts expect a similar contraction to have occurred in the first three months of this year.
Dallas Federal Reserve chief Richard Fisher has said that the economy probably contracted in the first three months of the year at an annual pace "very similar" to 6.3% drop in the fourth-quarter of 2008.
But after eliminating the influence of prices, which are the numbers used to calculate GDP, the trade deficit fell to $35.6 billion, the lowest level in about eight years.
"The narrowing trade deficit is good news as it will add to growth during the first quarter," said Joel L. Naroff President and Chief Economist of Naroff Economic Advisors, Inc. "With consumer spending holding up better than expected, first quarter growth could be a lot less negative than initially feared. We get the preliminary numbers on GDP on April 29th and I am actually looking forward to them."
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