The U.S. trade deficit narrowed in December but was still the second-highest monthly figure ever. And it lifted the deficit for 2004 to $617.7 billion -- a record that surpassed the previous all-time high, set in 2003, by nearly one-quarter.
The trade report, issued today by the Commerce Department, capped a year in which the voracious appetite of Americans for imported goods drove the deficit to proportions no major industrial country has ever reached -- 5.3 percent of gross domestic product, up from 4.5 percent the year before. The widening gap has deepened worries that the United States is growing dangerously dependent on the capital lent by foreigners to cover the cost of the products they sell to Americans.
The narrowing of the December deficit, to $56.4 billion from a revised record of $59.3 billion in November, offered a glimmer of hope that the relentless upward surge in the gap might abate in coming months. Federal Reserve Board chairman Alan Greenspan predicted last week that the deficit may soon start leveling off and possibly even shrink, citing the fall in the dollar against other currencies, which makes U.S.-made goods more competitive against products made abroad.
But today's report offered fresh data about why a turnaround will be so difficult, because imports increased nearly twice as much as exports last year. That is the opposite of what must happen for the deficit to narrow. Since the $1.764 trillion that the United States imported last year is so much greater than the $1.146 trillion that it shipped abroad, exports must grow much faster than imports to close the gap.
"The U.S. trade deficit narrowed sharply, but let's not get carried away," said Joel Naroff of Naroff Economic Advisors. "The level is still the second highest we have ever recorded. . . .The deficit is still way too wide."
The dollar, which hit three-month highs against the euro earlier this week, slipped after an initial surge. Shortly before noon, the greenback was changing hands with the euro at $1.2883 per euro, about a cent lower than yesterday.
Much of the narrowing in the December deficit stemmed from a drop in the value of petroleum imports that was attributable to an 11 percent fall in petroleum prices. Imports of other goods rose, raising the nation's total import bill by 0.1 percent, to $156.6 billion.
By far the brightest spot in the report was a $3.1 billion increase in exports, to $100.2 billion, with the boost spread widely among capital goods, industrial supplies and consumer products. That result reinforced the optimism of analysts who believe the falling dollar will help spur shipments of U.S. goods overseas.
The decline in the greenback, which began in 2002 and has been sharpest against the currencies of Europe, Canada, Britain and Australia, "will begin to improve our trade balance in 2005," predicted Frank Vargo, vice president for international affairs at the National Association of Manufacturers. "There is always a lag of a couple of years between the time a currency shifts and the time that is reflected in trade values."
The U.S. deficit remained predictably huge with one country whose currency is kept fixed against the dollar -- China. In December, the bilateral trade gap with China narrowed, to $14.3 billion from $16.6 billion the previous month, but for the year the deficit soared to $162 billion, from $124 billion in 2003.
China's currency policy has sparked complaints from the NAM and labor unions that it is holding the value of the yuan at artificially low levels, giving its products an unfair advantage in world markets. Anger in Congress over the issue has prompted some lawmakers to introduce legislation calling for across-the-board tariffs on Chinese goods.