Trade deficit narrows, boosting economic growth forecast

Economists sharply raised their forecast for first-quarter economic growth after news of an unexpectedly big drop in the nation’s trade deficit in February.

The Commerce Department reported Thursday the trade deficit narrowed in February to $46 billion from $52.5 billion in January. Most of the decline was due to a sharper-than-expected 2.7% falloff in imports, much of that from China. U.S. exports in February was up a tiny 0.1%.

Analysts said the trade gap was likely to turn up in March as Chinese production and shipments resumed after the Lunar New Year holiday in February. The slowdown in Europe also could take a bite out of U.S. exports.

For now, the surprisingly smaller deficit suggests a significantly bigger economic growth rate for the first quarter, as stronger net exports add to the numerical calculations for output.

Macroeconomic Advisers, a major forecasting firm, marked up its estimate for first-quarter gross domestic product growth to an annualized rate of 3.1% from 2.6%. Only a few weeks ago, it was projecting a more-moderate GDP growth of about 2% in the first quarter.

The stronger the GDP growth, the more favorable the conditions for job growth. But Ben Herzon, an economist at Macroeconomic Advisers, cautioned the mark-up in the first quarter rate could be followed by a mark-down in the spring quarter. Hence, there could be little change overall in the expected moderate performance in the first half, for economic activity and hiring.

Still, U.S. Commerce Secretary John Bryson hailed Thursday’s report as another indication of the strength of American exports, which have fueled manufacturers’ sales and employment in the recovery.

“Today’s numbers show that U.S. exports have increased this year, despite some tough economic conditions abroad,” he said in a statement. Bryson added the Obama administration would fight to ensure greater and fairer access for American goods to foreign markets.

In February, U.S. exports totaled a record $181.2 billion, with growth led by a 2.1% gain in consumer products. Shipments fell for American-produced food (-4.7%) and cars (-6.4%). Exports of capital goods were unchanged at $43.2 billion, although the balance of trade in advanced technology goods improved from the prior month.