Trade gap narrows in March

Deficit shrinks more than expected as demand for imports falls by the sharpest rate in over 6 years.

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By David Goldman, CNNMoney.com staff writer

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The trade gap narrowed in March despite the first month-over-month decline in exports in a year.

NEW YORK (CNNMoney.com) -- The nation's trade gap narrowed in March, as a weakened U.S. economy led to the sharpest decline in Americans' demand for foreign imports in more than six years, according to a government report released Friday.

The Commerce Department said the March trade deficit came in at $58.2 billion, versus a revised $61.7 billion in February. A consensus of economists forecast the gap would shrink to $61.3 billion, according to Briefing.com.

U.S. exports for the month fell 1.7% to $148.5 billion from February's $151.1 billion.

The decline in exported goods and services was the first since April 2007, but was dragged down by a momentary lull in volatile airplane exports. Plane manufacturer Boeing (BA, Fortune 500) is the nation's largest exporter.

"We shouldn't read a lot into one month's data," said Wachovia international economist Jay Bryson. "In general net exports will continue to boost U.S. gross domestic product."

U.S. exports have benefited in recent months from a weaker dollar, which makes goods manufactured in the United States less expensive and more attractive to foreign buyers. Despite March's decline, Bryson said the strong demand for U.S. exports alone was enough to boost first-quarter U.S. GDP to show 1.3% growth from the preliminary 0.6% estimate. But a decline in imports will likely mean lower inventory levels for retailers, which account for more than half of all GDP.

Imports fall dramatically

Foreign imports fell at a faster pace than exports, as the weak U.S. currency made imports more expensive for Americans. Imported goods and services fell 2.9% to $206.7 billion from $212.8 billion in the previous month. That was the sharpest month-over-month decline in demand for imports since December 2001.

Imports would have fallen even more were it not for the dramatic rise in the price of a barrel of imported oil, which spiked to $110 a barrel for the first time in March. The average price of a barrel hit a record $89.85 during the month, up 6% from February and 69.5% from year-earlier levels. March marked the 13th-consecutive month in which the price of imported oil increased month over month.

As Americans pay more for oil, that leaves less money to spend on clothing, televisions, cars, and toys from foreign nations. For instance, Japanese automaker Toyota (TM) reported profit margins declined 28% in the first quarter on slumping demand for automobiles in the United States.

Trade deficits have been rising steadily for more than 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 deficit with China.

With the U.S. economy in the midst of a slowdown, however, the trade gap may narrow further as imports become more expensive. But as the global economy begins to slump as well, U.S. exports may meet lower demand.

"The weak dollar helps exports, but in general, growth around the world is starting to slow," said Bryson. "The economic shock is concentrated in the U.S., but the growth of exports may trend lower than in the past two years."

The biggest source of the trade gap continued to be China, though that gap narrowed in March. The trade deficit with China was down 12.4% to $16.1 billion during the month, or about 27.7% of the overall gap.

Because Canada is the predominant buyer of U.S. exports, it remains the largest U.S. trading partner.

Americans spent an average of $680 on imported goods and services during the month. To top of page

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