The US trade deficit narrowed in December as the declining dollar gave exports a boost, while first-time claims for jobless benefits fell to the lowest level in more than four years.
The data were another sign of improving US economic growth. However, the annual trade gap still widened more than 24 per cent in 2004 to a record $617.7 billion, the Commerce Department said.
The December trade gap totaled $56.4 billion, slightly below the average estimate of Wall Street analysts surveyed before the report. In addition, Commerce lowered its estimate of the November trade gap to $59.3 billion, from $60.3 billion, partly because of a computer error by Canada's statistical agency, which understated US exports to Canada in November by $1.4 billion, the Commerce Department said.
A separate report showed the number of Americans filing initial claims for jobless benefits fell unexpectedly last week to 303,000. "Across the board, it's pretty good data for the US Not only the trade deficit coming down more than expected, but initial jobless claims were the lowest since late 2000. It's hard to find what the market would not like about this for the dollar," said Robert Sinche, head of foreign exchange strategy, Bank of America.
The dollar, which has been under pressure because of the huge trade deficit, rose against the euro in early trading after the trade report, but then fell as caution quickly overcame initial enthusiasm. The Dow Jones industrial average the broader Standard & Poor's 500 Index were modestly higher at midday on the better-than-expected economic data and healthy company earnings reports. Even with the downward revision, the November trade deficit remained a record and the December gap was the second highest. But the trade numbers "are better than what the Commerce Department assumed when they put together the advance estimate for (fourth-quarter) GDP growth, so that is going to get revised up, probably to around 3.8 (per cent) from the 3.1 that was the advance estimate," said Henry Willmore, chief US economist at Barclays Capital in New York.
US exports of goods and services were a bright spot in the December trade report, at a record $100.2 billion. Annual exports were also a record at $1.15 trillion, but were surpassed by record imports of $1.76 trillion.
The 3.2 per cent increase in exports, combined with nearly flat growth in imports, during December shows the drop in the dollar since 2002 is having an effect, said Anthony Chan, senior economist with JP Morgan Fleming Asset Management.
"The numbers are very encouraging on that front. It appears that we may be slowly turning the corner on this deficit," Mr Chan said. The trade gap could widen further in 2005, but probably not by another 24 per cent, he said.
At the same time, if recent trends in the labour market persist, the US economy could create 2.5 million new nonfarm payroll jobs this year, Mr Chan said.
Ian Shepherdson, chief economist at High Frequency Economics, said the larger-than-expected decline in jobless benefit claims was "probably magnified" by seasonal adjustment factors that don't accurately reflect the impact of severe winter storms early last year.
"There will likely be some payback (in the report) next week. Still, the trend in the data clearly shows that lack of hiring, not excessive firings, is the key problem for the labour market," Mr Shepherdson said.
More than 25 per cent of the annual trade deficit reflects the shortfall in trade with China, which hit a record $162 billion in 2004, up from last year's record $124 billion.
The rapid rise has lead to proposals in Congress to reduce imports from China by slapping tariffs on their products.
Two Democratic senators, Byron Dorgan and Hilary Clinton, plan to introduce legislation that would put a "cap" on the trade deficit and require the president to take action if it exceeds that level. The United States imported a record $196.7 billion from China in 2004, while exporting a record $34.7 billion to that country. Despite the huge gap, China is one of the fastest growing markets for US exporters.
The bilateral trade deficits with Canada, Mexico and the European Union also set records in 2004. Oil import prices fell $4.52 per barrel in December for the largest month-to-month decline since early 1991.