Trade deficit slips as exports set record high

The U.S. trade deficit in November was the smallest in 16 months, as a weak dollar and solid foreign economic growth helped exports set a record, a Commerce Department report showed Wednesday.

The better-than-expected data were evidence of a stronger economy in the fourth quarter of 2006, and some analysts said it was a sign the huge trade deficit could be headed lower in 2007 after setting another annual record last year.

Morgan Stanley economists raised their estimate of fourth-quarter U.S. economic growth to an annual rate of 2.8% from 2.5%, and a Bank of America analyst said the U.S. economy advanced at a 3% annual pace in the last three months of 2006.

Investors, however, reasoned that the narrower trade gap made it even less likely the Federal Reserve would cut interest rates early in 2007.

The huge trade gap has been a long-term drag on the dollar against other currencies.

A separate survey of top forecasters released Wednesday pegged U.S. economic growth at a 2.3% and 2.5% rate, respectively, in the first and second quarters of this year.

The trade deficit narrowed 1% in November to $58.2 billion, the smallest since July 2005, surprising many Wall Street analysts who had expected a wider trade gap.

“It is looking better, but it is still humongous,” said Kurt Karl, head of economic research and consulting at Swiss Re in New York. “The movement in the dollar has helped, and the weakness in the U.S. economy has helped, and the strength in foreign markets has helped.”

The 2006 trade gap through the end of November totaled $701.6 billion, keeping it on track toward an annual record.

The closely watched deficit with China totaled $213.5 billion through November, shattering the 2005 annual record of $201.6 billion and keeping it on pace to finish 2006 in the range of $230 billion to $240 billion.

Democrats seized on the mammoth trade gap as evidence for tougher U.S. action to force China to revalue its currency, which many lawmakers believe is undervalued against the dollar by as much as 40%.

“Unless the administration takes action to end China’s unfair currency manipulation, we will continue to see the problem get worse,” said Sen. Charles E. Schumer (D-N.Y.), the new chairman of Congress’ Joint Economic Committee.

Imports from China slipped 5.2% in November to $27.8 billion but still totaled $236.6 billion for the first 11 months of the year. The monthly trade gap with China narrowed nearly 6% to $22.9 billion.

U.S. exports of goods and services grew nearly 1% in November to a record $124.8 billion. Goods and services exports also set records in their individual categories, as did capital goods and consumer goods.

Commerce Secretary Carlos M. Gutierrez said the strong export performance was evidence that Bush administration trade policies were working.

He urged Congress to renew the administration’s trade promotion authority, which expires in June, so the White House can continue to negotiate market-opening trade deals.

That is expected to be a tough battle.