Friday, February 15, 2008

US Trade Deficit Narrows

Given recent economic events, it would have been a real concern if the US trade deficit had not posted a marked improvement. The data from the US commerce department said the trade deficit contracted by 7% last month to $59bn (£30bn), the biggest monthly fall in more than a year.

The trade deficit totalled $711.6bn for all of 2007, down 6% from the record set in 2006. It is the largest annual percentage drop since 1991.

The main reasons for the drop in the deficit includes

Devaluation of the Dollar. Falling dollar has made US exports appear more competitive
Strong Demand from East. Despite talk of a global slowdown growth in other parts of the world is still strong
Falling consumer confidence. Due to weakness in the housing market, US consumer spending is showing less strength than previously; this is helping to limit the growth in imports.

The US has a significant deficit just due to oil imports. If the price of oil had not risen so much in 2007, the deficit may have been even less.

The falling trade deficit may help improve prospects for the dollar and future US economic growth.

US Trade deficit

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