December Trade Deficit Narrows
The U.S. trade deficit narrowed in December as the declining dollar gave exports a boost, and first-time claims for jobless benefits fell to their lowest level in more than four years last week.
The reports, released Thursday, bolstered hopes for U.S. economic growth.
The Commerce Department said the December trade gap totaled $56.4 billion, slightly below Wall Street expectations. The department also cut its estimate of November’s trade gap to $59.3 billion from $60.3 billion.
Still, the trade deficit widened more than 24% for all of 2004 to a record $617.7 billion. And even with the downward revision, November’s gap remained a record, and December’s was the second highest.
A separate report showed the number of Americans filing initial claims for unemployment aid fell unexpectedly last week to 303,000.
“Across the board, it’s pretty good data for the U.S.,” said Robert Sinche, head of foreign exchange strategy at Bank of America.
The size of the U.S. trade deficit has long weighed on the dollar. Although the currency initially rallied Thursday after the release of December’s data, enthusiasm soon petered out and the currency eased. Stock markets rose, cheered by the upbeat data and earnings news.
Henry Willmore, chief U.S. economist at Barclays Capital in New York, noted that the trade numbers were better than what the Commerce Department assumed when it made its initial estimate of fourth-quarter gross domestic product growth. He predicted that growth for the October-to-December period would be revised upward to 3.8% from 3.1%.
U.S. goods and services exports were a bright spot in the December trade report, rising to a record $100.2 billion. Annual exports also hit a record at $1.15 trillion but were surpassed by record imports of $1.76 trillion.
The 3.2% increase in exports, coupled with nearly flat growth in imports during December, shows the drop in the dollar since 2002 is having an effect, said Anthony Chan, an senior economist at J.P. Morgan Fleming Asset Management.
“It appears that we may be slowly turning the corner on this deficit,” Chan said. The trade gap could widen further in 2005 but probably not by another 24%, he said.
On jobless claims, Ian Shepherdson, chief economist at High Frequency Economics, said the larger-than-expected drop was probably magnified by seasonal adjustment factors that did not accurately reflect severe winter storms early last year.
“Still, the trend in the data clearly shows that lack of hiring, not excessive firings, is the key problem for the labor market,” Shepherdson said.
