Falling imports help US shrink deficit

US Trade Deficit

America's struggling economy may finally be showing the first genuine signs of recovery after it was announced that its trade deficit shrank to $37.3 billion during the month, down by 6.6 percent on the previous month, and well below predictions of an increase of up to $41 billion.

Oil and cars are the biggest casualties of America's trimmed imports as the US Commerce Department insist the measures taken by Washington to reign in the country's escalating trade deficit have proved successful. Imports dropped 1.7 percent, with crude oil imports at their weakest level since February 1999, at 245 million barrels.

"It's very early days, but January's figures suggest that the external sector will be a modest drag on GDP growth in the first quarter," said Paul Dales, US economist at Capital Economics. If the current deficit were sustained in February and March, he said, "net trade may subtract anything between 0.5 percent and 1 percent from annualised GDP in the first quarter."

However, despite the deficit in general decreasing the trade gap with China has widened even further to $18.3 billion.

Caution remains

Elsewhere, in the job market the latest data showed a continued rise in the number of people claiming unemployment benefits. The number of people filing continuing, long-term claims rose by 37,000 to 4.558m in the week to February 27, while first-time claims fell 6,000 to 462,000 in the week to March 6, the latest available.

However the current numbers are being artificially buoyed by the US government's hiring of approximately 750,000 temporary workers as part of the 2010 Census, but once this is completed it's feared an unemployment spike is likely.

Reasons to be optimistic but caution remains, "The fact that exports and imports fell in January does not mean that the rebound in world trade is over," said Dales.

"Further ahead, though, a fading of the economic recovery is likely to hold back import growth."

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How the recession remade manufacturing | US trade deficit climbs unexpectedly | Are foreigners to blame for the global recession?

Daniel Jones

Daniel is a Politics and Philosophy graduate from Cardiff University where he also worked as a section editor on the award winning student newspaper. After university he joined an IT support company where he was a B2B online writer. He loves anything to do with sport and joined GDS in July 2009.

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