Trade gap widens less than expected

NEW YORK (CNNMoney.com) -- The trade deficit widened in January, although the increase was smaller than expected, according to a government report Tuesday.

The Commerce Department said the gap between the nation's imports and exports came in at $58.2 billion, up from a revised $57.9 billion in December. Economists surveyed by Briefing.com had forecast the gap would grow to $59 billion.

U.S. exports for the month rose 1.6% to $148.2 billion from December's revised $145.8 billion. But imports also rose 1.3% in January to $206.4 from $203.7 billion in the previous month.

A weaker dollar in recent months has made goods manufactured in the United States less expensive in foreign markets. But at the same time, it has caused the price of imports to rise here.

Imports were supported by the record price for oil imports. A barrel of crude oil traded at $100 for the first time in January, and seasonally-adjusted crude imports rose 10.4% in January from December.

The average price of a barrel of imported oil hit a record $84.09 during the month, up 1.6% from December and 60% from year-earlier levels.

But amid an economic downturn and a increasing inflation, the non-petroleum trade gap has narrowed 21.6% since January 2007 compared to a 1.5% total trade deficit increase over the same time period.

"This report was all oil on the import side," said Wachovia international economist Jay Bryson, who called oil the "wild card" of the trade deficit. "If oil goes back to normal prices, we'll see a dramatic narrowing of the trade gap."

The biggest source of the trade gap continued to be China. The trade deficit with China climbed 8.1% to $20.3 billion during the month, or about 34.9% of the overall gap.

Trade deficits have been rising steadily for 16 years, soaring from only $31.2 billion for all of 1991. The gap has posted record highs eight times in the last 10 years, driven greatly by the widening gap with China.

If, as many economists believe, the U.S. economy has entered into another recession, it could again lead to a narrowing trade gap this year, especially if overseas economies stay strong, which would allow U.S. exports to continue to grow.

But even if the U.S. economic slump translates into slow global growth, the trade gap could still narrow. "If solid growth is maintained in the rest of the world, dollar weakness will continue to help exports," said Bryson. "[But] though export growth will slow domestically if growth in rest of world slows, import growth will also remain low if the U.S. is indeed in recession, said Bryson.