March trade deficit drops by bigger-than-expected amount

WASHINGTON - The U.S. trade deficit narrowed sharply in March as demand for imports fell by the largest amount since the last recession was ending. Analysts forecast that trade would continue to be one of the economy's few bright spots this year.

The March deficit totaled $58.2 billion, down 5.7 percent from February, the Commerce Department reported Friday. It was a much larger improvement than had been expected.

The smaller deficit was driven by a 2.9 percent drop in imports, which reflected widespread weakness in demand as consumers, battered by a severe housing slump, a credit crisis and soaring gasoline prices, cut back on their purchases of both domestic goods and imports. It marked the biggest one-month decline in imports since December 2001, when the country was struggling to emerge from the last recession.

Many analysts believe the country has fallen into another recession, although the better-than-expected trade performance prompted some economists to project that growth will be revised up from the barely discernible 0.6 percent rate reported last week to a slightly more respectable 1.1 percent rate for the first three months of this year.

That could mean the country will be able to avoid a full-blown downturn, although growth at that level would still be viewed as a so-called growth recession in which the economy does not expand fast enough to prevent unemployment from rising.

Mark Zandi, chief economist at Moody's Economy.com, said he still believed the current slowdown would be ruled a recession because growth will dip into negative territory in the current quarter.

"I still believe this is a recession and I think ultimately at the end of the day, it will be labeled as one," he said. He said, however, that export growth will continue to cushion the drag from housing and other weak sectors.

On Wall Street, stocks ended the week with a big decline as investors grappled with continued turmoil in the credit market and surging energy prices. The Dow Jones industrial average fell 120.90 points Friday to close at 12,745.88.

Imports totaled $206.7 billion in March, down $6.1 billion from the February level, a drop led by a 5.9 percent decrease in America's foreign oil bill. The amount of petroleum shipped into the country declined although the average price for a barrel of imported crude shot up to a record $89.85. With oil prices climbing this week to a new trading high above $126 per barrel, the March dip in oil imports was expected to be temporary.

Exports, which have been one of the few strong points in this period of weakness, dipped 1.7 percent in March to $148.5 billion, but that was still the second-highest level on record. For the first three months of this year, exports were up 17.6 percent over the same period a year ago.

Exports have supported half of the growth that has occurred in the economy over the past year and that is expected to continue as American farmers and manufacturers keep benefiting from a weaker dollar, which makes their goods cheaper on overseas markets.

"Exports are the strongest part of the U.S. economy," said Frank Vargo, vice president for international economic affairs at the National Association of Manufacturers.

The politically sensitive deficit with China dropped by 12.4 percent to $16.1 billion in March, the smallest level in two years, as U.S. exports to China climbed to the second highest level on record, led by sales of medical testing equipment and computer chips. At the same time, imports of Chinese products dropped sharply, reflecting lower demand for clothes, textiles and toys.

Last year, the deficit dropped to $708.5 billion, the first improvement after five straight years of record highs, and economists forecast further improvement this year. Administration critics contend the deficits remain at debilitating levels and since Bush took office have contributed to the loss of more than 3 million manufacturing jobs. They say the Bush administration is failing to protect American workers from unfair foreign trade practices such as China's currency policies.

Democrats hope to make trade an issue in the upcoming battles for the White House and control of Congress. But Commerce Secretary Carlos Gutierrez said Friday that the high level of U.S. exports showed the Democrats' decision to block a vote on a free trade deal with Colombia was shortsighted.

He said the administration still hoped to win approval of free trade deals with Colombia, Panama and South Korea before Bush leaves office. House Speaker Nancy Pelosi, D-Calif., has said lawmakers will not take up the Colombia deal until the administration signals a willingness to go farther in addressing Americans' economic needs.

"We don't like this idea of using an ally as a bargaining chip," Gutierrez said in an interview with The Associated Press, predicting that the economy will receive a boost as the first of 130 million economic stimulus payments make their way to U.S. households.

The Treasury Department reported Friday that since the Internal Revenue Service began making direct deposits on April 28 followed with mass check mailings this week, 29.9 million payments have been made totaling $27.2 billion.

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