The Wall Street Journal-20080215-Slow Spending Helps Narrow Trade Deficit

Return to: The_Wall_Street_Journal-20080215

Slow Spending Helps Narrow Trade Deficit

Full Text (407  words)

Consumers' voracious appetite for imported goods has abated, helping narrow the trade deficit in December and all of last year.

The Commerce Department said the trade gap narrowed 6.9% in December to $58.8 billion, its largest monthly decline since October 2006. Despite higher oil prices, the trade gap for the full year narrowed 6.2% from 2006 to $711.6 billion, the first decline since 2001 and the biggest in percentage terms in 16 years.

Exports rose while imports fell. That underscores a shift in the economy as domestic consumer spending slows and foreign demand for U.S. goods remains strong, helped by the dollar's weakness. A weaker dollar makes U.S. goods and services cheaper for those using other currencies.

The December trade figures could lead to an upward revision in the estimate of fourth-quarter gross domestic product, or the total value of goods and services produced in the nation. An initial estimate put fourth-quarter growth at a meager annual rate of 0.6%. The government will issue a revised figure at the end of this month.

The shrinking trade deficit is bittersweet, economists say. "Normally, a slowing U.S. economy is associated with an improvement in the trade balance," Roger Kubarych, chief economist for UniCredit Global Research, said in a client note. "This time is no different."

Imports in December declined for the first time in four months, falling 1.1% to $203.1 billion. The drop in nonpetroleum imports -- a major gauge of consumer demand -- was widespread, reinforcing other signals that consumer spending is slowing. That is worrisome because consumer spending on goods and services fuels nearly three-quarters of economic expansion.

"Disturbingly, the drop in imports was led by autos and consumer goods," wrote Lehman Brothers economist Drew Matus. "This suggests additional weakness in U.S. consumption."

Imports of consumer goods fell 1.2% from the previous month, including a 9.3% drop in auto imports.

The weaker dollar helped increase foreign demand for U.S. goods. Exports climbed to a record, rising 1.5% to $144.3 billion. The increase was fueled by record foreign demand for industrial supplies, capital goods and consumer goods. The U.S. exported a record amount of goods to China and to South America in December. And civilian-aircraft exports, primarily from Boeing Co., jumped 33.1%.

As a result, the U.S. trade deficit with China narrowed slightly to $18.8 billion in December from $18.9 billion a year earlier. Still, the U.S. trade gap with China was a record $256.3 billion last year.