US trade gap shrinks to lowest in six years

The US trade gap shrank by almost 10 per cent in January to the lowest level for six years, as Americans’ once voracious demand for the world’s goods was further eroded by the recession.

Consumer confidence in the US is lingering near a 28-year low, according to a separate survey on Friday, though it looks to be stabilising after months of shuddering declines.

Both imports and exports fell for a record sixth consecutive month as global trade declined, but imports tumbled faster at 6.7 per cent. Led by the lowest level of foreign car imports since 1998, the trade deficit shrank to $36bn; most economists expected a less dramatic decline to $38bn.

An 18.5 per cent slide in the value of oil imports also played a part in cutting the deficit, reflecting both lower demand and the cheaper price of oil.

”The narrowing reflects the ongoing economic downturn. US consumers are pulling back and that’s resulting in fewer imports while exports are falling,” said Mark Zandi, chief economist at Moody’s Economy.com. ”It reflects how bad economic conditions are everywhere.”

The US’ trade gap with the European Union was cut in half to $3.5bn, and the gaps with Japan, Canada and Mexico also shrank. However, the trade gap between the US and China increased slightly from $19.9bn to $20.6bn.

Following years of concern that America’s trade deficit was unsustainably high and could spark a dollar crisis, the fact it is narrowing is seen as one bright spot among the country’s raft of problems.

However, with the rest of the world also suffering, demand for American goods is falling fast, which is bad news for many US businesses. Exports dropped by 5.7 per cent in January, the lowest level since September 2006, with sales of American-made cars plunging.

“It’s not a good report for US manufacturing,” said Julia Coronado, a senior U.S. economist at Barclays Capital. “This is certainly a sign that the global weakness is feeding into the domestic economy through the export channel.”

Domestically, the collapse in house prices has sliced almost 20 per cent from US households’ net worth. However, the Reuters/University of Michigan preliminary index of consumer sentiment , also published on Friday, showed that sentiment improved slightly in March, up from 56.3 to 56.6.

Although consumers’ assessment of current economic conditions fell, those who thought that President Obama was doing a good job jumped from 14 per cent last month to 23 per cent in March.

“We had expected a sharp drop, so this is something of a pleasant surprise,” said Ian Shepherdson, chief US economist at High Frequency Economics. “That said, the index is still extremely low and consistent with continued outright declines in consumers’ spending.”