Trade gap narrows sharply in January, U.S. data show

WASHINGTON (MarketWatch) -- After widening dramatically for two months, the U.S. trade deficit reversed course and narrowed unexpectedly in January, government data indicated, suggesting that the economic recovery remains tentative.

The trade deficit shrank a seasonally adjusted 6.6% to $37.29 billion from $39.90 billion in December, the Commerce Department said Thursday.

The one-month improvement in the deficit marked the biggest since last September.

The trade gap had jumped by 9.7% in November and by 10.5% in December -- reports that economists said had a strong-economy feel about them as the appetite for imported goods was robust.

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The narrowing of the deficit in January was a surprise. Analysts surveyed by MarketWatch had expected the deficit to widen to $41.0 billion. See calendar of all major economic indicators.

There was little discernable market reaction to the trade data. See full story.

Compared to other data, the deficit hasn't been front and center for traders or policy makers in recent months.

Despite the narrowing, the deficit remains well above the low point of a $25.76 billion deficit hit last May.

Economists may feel that the January decline in the trade gap is more of a pause than a new trend and that the recovery in global trade will continue in coming months.

Details

In January, both exports and imports declined, with imports falling at a faster pace. See the full government report.

Exports fell 0.3% to $142.7 billion, the first decline in eight months. An improvement in Asian economies and a weaker dollar has bolstered exports in recent months.

Imports fell 1.7% to $ 180.0 billion, the largest monthly decline in imports in a year.

Imports of goods alone fell 2.1% to $147.8 billion. The largest drop came from imports of automobiles, capital goods and consumer goods.

Meanwhile, exports of goods alone slipped 0.7% to $98.4 billion. The biggest decline came in the capital-goods sector, including civilian aircraft, as auto exports also declined.

Excluding petroleum, the deficit narrowed 10.7% to $14.60 billion in January from $16.35 billion in the final month of 2009.

The petroleum deficit narrowed 5.4% in January to $25.41 billion, the lowest level since August. It was more a decline in volume of imports as the price of a barrel of oil ticked higher in January.

Excluding price changes, the overall trade deficit narrowed 6.3% to $41.04 billion in January.

The U.S. trade deficit with China narrowed to $18.30 billion in January, compared against $20.57 billion in the same month last year and $18.14 billion in December. Imports from China were at their lowest level since last June.

In a separate report Thursday, the Labor Department reported that initial claims for state unemployment insurance fell 6,000 to 462,000 in the latest week. Read MarketWatch complete coverage.