February 8, 2013 2:34 pm

US trade deficit narrows thanks to oil

The US trade deficit narrowed sharply in December to the smallest since January 2010, mainly on greater petroleum exports and fewer imports, signalling a likely upward revision in fourth-quarter economic performance figures.

The trade gap shrank 20.7 per cent to $38.5bn from a downwardly revised $48.6bn in November, commerce department data showed on Friday. Economists surveyed by Bloomberg had expected a deficit of $46bn.

The boost in fuel sales to buyers outside of the US, in addition to purchases of the fewest barrels of imported crude in almost 16 years, reduced the petroleum deficit to the narrowest in more than three years.

“The US trade balance improved dramatically at the end of last year,” Harm Bandholz, chief US economist at UniCredit Research said in a note. “The petroleum deficit in December was the smallest since October 2009.

“This improvement most likely reflects a combination of two factors: unusually mild temperatures in December, meaning less demand for utilities and higher domestic energy production.”

Economists forecast that fourth-quarter 2012 gross domestic product will be revised upwards, which would bump the economy back into positive territory.

“The surge in the deficit in November always looked like a fluke, but we had not expected such a comprehensive reversal in December, at least at the headline level,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

Initial reports showed output shrank at a 0.1 per cent annual rate as the biggest fall in defence spending in 40 years overshadowed gains in consumer and business purchases.

In December, exports rose 2.1 per cent to $186.4bn, boosted by sales of industrial supplies, while petroleum exports rose by nearly $1bn to a record high. Imports fell 2.7 per cent to $224.9bn, reflecting the lowest level of crude oil barrel purchases since February 1997.

For the full year 2012, exports increased 4.4 per cent to a record $2.2tn while imports gained 2.7 per cent to $2.74tn. This pushed the trade gap lower last year to $540.4bn, from $559.9bn in 2011.

A narrower trade gap boosts growth as it indicates US companies earned more from overseas sales while spending less on foreign products.

In December, the deficit fell with most of the nation’s biggest trading partners. The gap with China declined to $24.5bn from $29bn in November, while the deficit with the EU fell to $8.7bn from $12.2bn.

Separate data showed inventories at wholesalers unexpectedly fell in December for the first time in six months as companies reduced stocks going into the new year.

The 0.1 per cent decrease in stockpiles followed a downwardly revised 0.4 per cent rise in November, commerce department data showed. Economists had expected a 0.4 per cent increase. Sales held steady after jumping 2.2 per cent in November.

At the current pace of sales, wholesalers had enough goods on hand to last 1.19 months, the same as in November.

The data will partially offset a boost to fourth-quarter growth from a December plunge in the trade deficit.

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