NEW YORK (CNN/Money) -
The U.S. trade deficit jumped 24 percent to a record high last year, the government said Thursday, though the nation's trade picture showed slight improvement at the end of the year.
The Commerce Department reported that while the trade deficit narrowed slightly in December from November's monthly record, the deficit for the full year grew to $617.7 billion, up $121 billion from 2003, the previous annual record.
For December, the gap between imports and exports fell to $56.4 billion from $59.3 billion for November, which was revised slightly lower. Analysts had forecast a gap of about $57 billion for December.
Much of the decline in December came as the value of oil imports fell $2.2 billion due to an 11 percent decline in average import prices from November and a 5 percent drop in imports.
The growth in the annual deficit came despite strong U.S. exports.
December saw exports of goods and services cross the $100 billion mark in a single month for the first time, as the weaker dollar made U.S.-produced goods more competitive in many other countries. Increased exports of capital goods, industrial supplies and materials and consumer products fueled the increase.
"The good news is that we're moving, albeit slowly, in the right direction and there are signs of further improvement on the horizon," said Oscar Gonzalez, economist with John Hancock Financial.
"There is evidence that the weakening dollar also is beginning to have a positive effect. This is a good sign both for the future of our exports and for our hope to narrow the trade gap."
A weaker dollar makes U.S. exports more competitive in other countries.
While service exports were little changed in December, services is where the United States has the greatest strength in trade. The nation exported $48.5 billion more in services than it imported last year.
Overall, exports of goods and services grew 12 percent to $1.14 trillion last year, but imports jumped 16 percent to $1.76 trillion.
As important as trade is to the nation's economy, a report on December activity in early February is considered somewhat old news by investors and thus prompted little reaction in financial markets.
The dollar rose against the yen but slipped against the euro following the report.
"The number itself wasn't very surprising," said Lehman Brothers Chief Economist Ethan Harris. "(Federal Reserve Chairman Alan) Greenspan's comments last week that the trade gap might start getting smaller raised attention and some hopes. But I didn't agree with him about that."
Harris estimated that the trade gap will continue to rise, topping $700 billion in 2005. But he said that overall he thinks the economy can absorb these rising imports.
"I'm not a big fan of describing trade as costing jobs," he said. He said the current trade situation has prompted the administration and the Fed to do more to stimulate the U.S. economy, leaving the nation's economy growing at a solid pace, even with rising imports.
Harris said his worry now is the sale of U.S. Treasury bonds to Asian banks that in effect acts as loans to the United States, where consumers then buy merchandise produced in Asia and elsewhere.
"To me the basic problem is we're handing over too much control of the economy to the fickle fate of foreign capital inflows," he said. "While everyone says it's a ticking time bomb, it's difficult to say how short the fuse is. As long as everything is quiet and there's no political problem, it's not a big deal."
But some economists believe the nation's trade policies are coming at the expense of growth and jobs at home.
"It's lowering growth by one to one-and-a-half percentage points," said University of Maryland professor Peter Morici. "If we cut the deficit in half, we'd pick up 5 million jobs in three years and the unemployment rate would fall to 4 percent."
Morici said the intervention of the Chinese government in currency markets, keeping the Chinese yuan basically pegged to the dollar, is responsible for much of the U.S. trade woes.
Without that peg, the Chinese currency would probably rise, cutting much of the competitive advantage Chinese manufacturers have versus their U.S. counterparts.
The gap in merchandise trade with China jumped nearly 31 percent to nearly $162 billion for all of 2004 -- by far the biggest gap with any single partner.
The 25 nations in or coming into the European Union together had a trade surplus of $110 billion with the United States last year, up 12.4 percent.
The U.S. trade gap with OPEC members was only $71.9 billion during the year, even as it soared 40 percent due largely to higher oil prices.