NEW YORK (CNN/Money) - November's drop in the trade deficit was welcome news and a sign the gap may be stabilizing, but there's little hope the deficit will shrink much further any time soon, economists said Wednesday.
The Commerce Department reported that the deficit between U.S. exports and imports shrank to $38 billion in November from a revised $41.6 billion in October.
Economists, on average, expected the gap to grow to $42 billion, according to Briefing.com. Most agreed the report was good news for the U.S. economy, and it helped push the battered dollar to early gains in the currency market.
"Today's data are very heartening, especially after Alan Greenspan yesterday played down any potential risks that the United States is having difficulty in financing its trade deficit," said Ashraf Laidi, chief currency analyst at MG Financial Group in New York, referring to a speech on Tuesday by the Federal Reserve chairman.
In the past year, the Atlanta Fed's dollar index, which measures the greenback against a basket of 15 major currencies, has fallen nearly 10 percent. That decline likely played a part in narrowing the trade gap, since it makes U.S. goods cheaper overseas.
And the shrinking trade gap should add to gross domestic product (GDP), the broadest measure of the economy, in the fourth quarter, since imports are counted against the economy.
"This puts upside risks in our forecast for 4.5-percent [annualized] fourth-quarter growth," said Maury Harris, chief economist at UBS Warburg. GDP grew at an 8.2 percent rate in the third quarter, the strongest reading in 20 years.
One-time factors could be reversed
But this happy trend in merchandise trade is unlikely to continue, many economists warned.
For one thing, November's drop was due in part to a big jump in exports of airplanes, a volatile category that will likely be reversed next month.
And November's $700 million drop in oil imports will also be reversed, given the recent jump in oil prices.
"Unfortunately, the underlying details [of this report] suggest that it would be premature to break out the champagne," said Jay Bryson, global economist at Wachovia Securities.
Meanwhile, though the trade gap with China, the biggest U.S. trading partner, shrank for one month in November, the year-to-date gap was still 22 percent higher than in 2002.
And November's decline was due, in large part, to falling U.S. demand for Chinese-made toys, household goods and apparel. As long as U.S. consumer spending stays strong, demand for Chinese-made goods should stay strong, too.
While many economists expect the dollar to keep falling and overseas demand for U.S. goods to keep rising, which would put downward pressure on the trade gap, they also expect continued strength in U.S. consumer spending and economic growth this year, which would tend to make the trade gap rise. The result could be a wash.
"I see the trade gap stabilizing, but it's hard to see it narrowing unless you get the U.S. consumer shutting down," said Lara Rhame, senior economist at Brown Brothers Harriman.
As a result, Rhame sees the current account deficit -- the broadest measure of trade -- holding steady at about 5 percent of GDP, roughly the level it's held since 2002, for "the next several quarters."
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