May 10, 2008 in Nation/World

Frugal spenders prompt drop in trade deficit

Anthony Faiola Washington Post
 

WASHINGTON – The U.S. trade deficit narrowed more than expected in March as American consumers, stung by the economic downturn and higher prices for foreign-made goods, drove down import demand sharply. Exports dipped, too, suggesting a softening of the global economy as well.

The shrinking of the deficit – from February to March, it was down 5.6 percent, to $58.2 billion – is typically heralded as good news for the U.S. economy. But economists cautioned Friday that the narrowing of the gap had more to do with penny-pinching by U.S. consumers forgoing Japanese cars, Swedish furniture and other foreign goods.

With the falling dollar making overseas goods more expensive at a time when Americans are more concerned about their jobs and higher gasoline and food prices, demand for imports fell 2.9 percent, to $206.7 billion, the largest one-month decline since December 2001, according to a report Friday from the Commerce Department.

“We have to realize that this slowdown has generated a pronounced deceleration of consumer and business spending,” said John Lonski, chief economist at Moody’s Investor Service in New York. “And I believe domestic spending is likely to stay sluggish. That isn’t such good news.”

Exports edged down, too, falling 1.7 percent from their all-time highs in February, to $148.5 billion, reflecting softening demand overseas for American cars, commercial aircraft, computers and other products. However, exports still remained a relative bright spot for the U.S. economy, with the weak dollar helping a 17.6 percent surge for the first three months of 2008 compared to the same period in 2007.

As growth in the rest of the world continues to outpace that in the United States, foreign demand for U.S. goods has remained strong. The deficit with China, for instance, narrowed to $16.1 billion, the smallest in two years, as Americans bought fewer Chinese-made toys and textiles and the Chinese upped their imports of American-made goods to their second-highest level ever.

“Today’s trade numbers show the strength of America’s exporting companies in the world marketplace and highlight the critical role that exports play in helping the U.S. economy overcome challenges in other sectors,” Commerce Secretary Carlos M. Gutierrez said.


Thoughts and opinions on this story? Click here to comment >>

Get stories like this in a free daily email