Dollar, Economy Bring Down Trade Deficit

U.S. Consumers Curtail Spending

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 yesterday that the narrowing of the gap had more to do with penny-pinching by U.S. consumers forgoing a variety of foreign goods, from Japanese cars to Swedish furniture.

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 yesterday 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 downward, 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 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.

With world food prices rising, especially in recent months, Gutierrez said U.S. agricultural products, including grains and frozen meats, have emerged as the fastest growing U.S. exports.

Analysts said yesterday that those exports could have risen by far more were it not for a serious bottleneck developing at U.S. ports, where demand for space aboard ships heading to Asia in particular is not being met.

The shipping industry has been slow to respond to requests for more capacity from the U.S. agricultural industry, which is struggling to fill orders overseas as a result, said Peter Friedmann, executive director of the Agriculture Transportation Coalition, an association of U.S. food exporters.

In recent years, he said, many of the ships that once served U.S. routes have been reassigned to inter-Asian or Asian-European routes, sparking backups in U.S. warehouses, on rail lines and in packing stations by U.S. food producers trying to fill overseas orders. He said U.S. food producers could have exported 20 to 30 percent more over the past six months if the shipping capacity had been available.

"The ocean carriers have been slow to recognize that this is a problem, and it's hurting our ability to take advantage of high demand overseas for American grains, meats and agricultural products," Friedmann said.