Trade deficit shrinks along with the economy

ByABC News
March 14, 2009, 8:59 PM

WASHINGTON -- The government says the U.S. trade deficit plunged in January to the lowest level in six years as a deepening recession cut demand for imported goods.

The Commerce Department said Friday that the trade imbalance dropped to $36 billion in January, a decline of 9.7% from December and the lowest level since October 2002.

The improvement was better than economists had expected and reflected the fact that crude oil imports dropped to the lowest point in three years. Demand for a wide variety of other foreign goods from autos to heavy machinery and household appliances also declined.

U.S. exports of goods and services fell 5.7% from December to the lowest since September 2006 and imports tumbled 6.7% to lowest since March 2005.

America's deficit with many of its trading partners declined sharply although the politically sensitive imbalance with China bucked the downward trend, rising 3.5% to $20.6 billion. American exports to China plunged by 19.7%, a much bigger drop than the 1.3% decline in Chinese goods shipped to the United States.

The January deficit of $36 billion, if it continued for the entire year, would result in a deficit of $432 billion for 2010, a drop of 36.5% from the $681.1 billion deficit recorded in 2008. That deficit represented a 2.7% drop from 2007, the first year that the trade gap had narrowed after setting records for five straight years.

Many economists believe the improvement for this year will be sizable as the country's most severe recession in decades trims Americans' appetite for foreign goods.

U.S. exports are also falling as the recession that began in the United States spreads worldwide. However, so far, the drop in imports is larger than the fall in exports, reflecting in large part the fact that oil prices have plummeted from the record levels they hit last year.

The trade deficit has now declined for a record sixth month, beating the prior record for declines of five straight drops in 2007.

For January, exports of goods and services dropped 5.7% to $124.9 billion, lowest since September 2006. Demand for a wide variety of U.S.-made products from farm goods to autos to civilian aircraft all dropped in January.