Trade gap falls in February as trade contracts

The U.S. trade deficit shrank in February as imports fell more than exports, according to a government report on Tuesday that suggested a slowdown in global demand.

The monthly trade gap totaled $45.8 billion, down from an upwardly revised estimate of $47.0 billion in January despite another monthly rise in prices for imported oil.

Analysts surveyed before the report had expected the deficit to narrow to $44.5 billion, from the previously reported January tally of $46.3 billion.

U.S. stock and bond markets showed little reaction to the report, while the dollar extended losses against the euro to hit its weakest level in 15 months.

The trade report “shows there are headwinds for the global economy … There are lot of geopolitical uncertainties weighing on trade,” said Michelle Meyer, senior economist at Bank of America Merrill Lynch in New York.

The smaller-than-expected narrowing of the trade gap “could pose a risk to Q1 GDP, which we have penciled down at a 1.5 percent increase quarter over quarter,” she said.

But Michael Woolfolk, senior currency strategist with BNY Mellon in New York said the report showed the U.S. economy was still growing despite the disappointing trade numbers.

“Bottom line, the economy is recovering and we’re importing more, even with the U.S. dollar weak and still weakening,” Woolfolk said.

U.S. exports, after rising in each of the previous five months, fell 1.4 percent in February to $165.1 billion. That was led by a $1 billion drop in auto and auto parts exports, with smaller declines for other major categories. Services exports rose just enough to set a record.

U.S. imports, which like U.S. exports have roared back from the depths of the global financial crisis in 2008 and 2009, fell a larger 1.7 percent in February to $210.9 billion.

Automotive imports fell $2.3 billion, followed by a $2.1 billion drop in capital goods. Imports of consumer goods rose $2.3 billion in February.

The average price for imported oil rose for the fifth straight month in February to $87.17 per barrel, the highest since October 2008. But that was tempered by the lowest quantity of crude oil imports since February 1999.

A separate Labor Department report showed imported petroleum prices jumped 10.5 percent in March, the most since June 2009, after rising 4.0 percent in February.

Along with a 4.2 percent rise in imported food prices, which was the most since July 1994, that pushed overall import prices 2.7 percent higher, their largest increase in more than 1-1/2 years, the report said.

The closely watched U.S. trade deficit with China shrank 19 percent in February to $18.8 billion, as U.S. imports from that country fell and U.S. exports to the Asian manufacturing giant rose.

While Beijing could point to the smaller trade gap as a sign its economy was becoming less reliant on exports, the U.S. trade deficit with China was still 21 percent higher for the first two months of the year.

China’s own trade figures released earlier this week showed that in the first quarter of 2011 it ran an overall trade deficit for the first time since 2004

(Additional reporting by Richard Leong in New York; Editing by Andrea Ricci)

WASHINGTON (Reuters) -By Doug Palmer