BUSINESS

US trade deficit falls 16.9 pct. in February to $35.4 billion as imports and exports decline

04/02/2015 08:31 EDT | Updated 06/02/2015 05:59 EDT
WASHINGTON - The U.S. trade deficit plunged in February as exports fell but imports dropped even more. The narrower gap could give a slight if temporary boost to U.S. economic growth, which has flagged in recent months.

The Commerce Department said Thursday that the deficit — the amount by which the value of U.S. imports exceeds the value of exports — plummeted 16.9 per cent to $35.4 billion from $42.7 billion in January.

The sharp decline reflected a $10.2 billion drop in imports since January to $221.7 billion, likely due to cheaper oil prices and a since-resolved West Coast ports dispute that interrupted the flow of 20 per cent of the nation's imports. The dispute led to sharp declines in imported goods from China and Japan, causing the trade deficit with both countries to fall.

Exports tumbled by a smaller sum, slipping $3 billion to $186.2 billion. They fell because a strengthening dollar has made American-made goods more expensive abroad. The dollar's rising value has curbed expansion at U.S. factories, according to an index released Wednesday the by Institute for Supply Management, a trade group of purchasing managers.

As a result, analysts say exports could decline further in coming months and likely weigh on the U.S. economy.

"Although the decline in the February deficit is good news for first-quarter growth, trade is likely to be a drag on the U.S. economy in 2015," said Gus Faucher, senior economist at PNC Financial Services.

The trade deficit has fallen 3.2 per cent compared with the same period last year. But economists expect that decline to end shortly. Most forecast that the deficit will widen further in 2015, as a growing U.S. economy should fuel demand for imports while the stronger dollar reduces exports.

Imports account for roughly 16 per cent of gross domestic product, while exports account for 13 per cent, according to analysts at Bank of America. The resulting trade deficit — which totalled $505 billion last year — represents roughly 3 per cent of GDP and causes a drag on overall growth.

The influence of the ports dispute was evident in the trade figures with China. Imported goods from China decreased $3.5 billion to $36.3 billion in February, a drop that may prove temporary based on historic patterns.

The politically sensitive deficit with China set another record high last year, surging 23.9 per cent to $342.6 billion. That constant gap has created pressure on Congress and the Obama administration to take tougher actions against what critics see as China's unfair trade practices. U.S. manufacturers say that China is manipulating its currency to keep it artificially low against the dollar.

The domestic energy boom has kept the deficit in check. Not only has the U.S. reduced its dependence on foreign oil, but the falling prices have further limited the cash value of imported petroleum.

February petroleum imports totalled $16.3 billion, the lowest since September 2004.