U.S. Trade Deficit Shrinks on Falling Oil Imports

The nation's trade deficit, aided by a lower imported petroleum bill, unexpectedly fell 6.6% in January to $37.29 billion, the U.S. Commerce Department announced Thursday.

It was the first decline for the trade deficit in the past four months, and it occurred despite the fact that exports fell, albeit just slightly, for the first time in nine months.

A Bloomberg News economists survey had expected the trade deficit to edge slightly higher to $41.0 in January, after rising to a revised $39.9 billion deficit in December 2009. The trade deficit totaled $36.1 billion in November and $32.9 billion in October. In January 2009, the trade deficit totaled $36.9 billion, dropping to a two-year low of $25.8 billion in May 2009.

Imported Oil Bill Plunges

The nation's bill for imported petroleum plunged 5.4% in January to $25.41 billion, despite a higher average price for a barrel of oil.

In January, total imports fell $3.1 billion or by 1.7% to $180.0 billion, with goods decreasing $700 million to $98.4 billion and services increasing $200 million to $44.3 billion. Meanwhile, total exports dipped $500 million or by 0.3% to $142.7 billion, with imports of goods decreasing by $3.2 billion to $147.8 billion, while services increased $100 million to $32.2 billion.

The U.S. trade deficit in January with key nations was as follows: China, $18.3 billion, up from $18.1 billion in December; European Union, $2.9 billion, down from $6.4 billion; OPEC, $7.2 billion, up from $6.8 billion; Japan, $3.3 billion, down from $4.6 billion; Mexico, $4.6 billion, down from $5.2 billion; Canada, $3.9 billion, up from $3.0 billion; Hong Kong $1.6 billion, down from $2.0 billion, and Nigeria, $2.1 billion, down from $2.2 billion.

Economists prefer that a nation run a trade surplus as opposed to a trade deficit, as it usually implies that a nation's goods are competitive on the world stage, its citizens are not consuming too much, and that it's amassing capital for future investment and economic goals.

Clearly, the unexpected decline in the top-line is the crucial statistic in January's trade deficit report. However, the fact that the nation's imported oil bill declined substantially is also a sign of continued U.S. belt-tightening: A higher average oil price has prompted U.S. consumers and businesses to find ways to conserve oil or to use energy substitutes.

Finally, the one-month dip in exports can be ignored. As long as exports resume rising in the months ahead, that will keep the uptrend in place -- a condition consistent with an expanding economy.