Highlights
Based on the latest trade numbers, either worldwide final demand is not growing as much as hoped or the January numbers are simply coming off sharp gains the month before. The overall U.S. trade deficit unexpectedly shrank in January despite higher oil prices, falling to $37.3 billion from a revised $39.9 billion in December. The January shortfall was much narrower than the consensus forecast for a $41.0 billion gap. Exports slipped 0.3 percent but imports fell a sharper 1.7 percent.

The improvement in the trade deficit was about evenly split between the petroleum and nonpetroleum balances. The petroleum deficit came in at $22.7 billion, down from $23.6 billion in December as barrels imported fell significantly. The nonpetroleum gap narrowed to $25.4 billion from $26.9 billion in December.

The decreases in exports and imports were broad based by components but with those for imports more notable. However, both followed strong gains in December as exports jumped 3.4 percent that month and imports surged 4.9 percent in December. At second look, it is not clear whether the drop in imports likely reflects a downgrade in the recovery by U.S. businesses believing that demand growth will be more sluggish.

The shrinkage in the petroleum deficit was due to a sharp 11.5 percent fall in barrels imports, following a12.5 percent boost in December. The price of imported oil increased to $73.89 per barrel from $73.20 per barrel in December.

Year-on-year, growth in overall exports of goods and services in January increased to 15.1 percent from 7.7 percent in December. The numbers are still coming off a low base during the worst of the recession. Meanwhile import growth rose to 11.9 percent from 4.7 percent the prior month.

It would have been nice for the eight month consecutive gains in exports to continue but there are always oscillations in any series. Taking into account recent strong gains, the January dip may or may not mean much in terms of overseas demand. The same may hold true for imports and domestic demand-but we will have to watch for other numbers to see.

On the news, markets were little changed this morning.

Market Consensus before announcement
The U.S. international trade gap in December unexpectedly ballooned to $40.2 billion from a $36.4 billion gap in November. The worsening in the trade deficit was largely due to a widening of the petroleum deficit as the nonpetroleum gap actually shrank. The good news was that exports jumped 3.3 percent in December-the eighth consecutive monthly increase. The trade gap could worsen again in January as the seasonally adjusted price of West Texas Intermediate jumped about 9 percent on a monthly basis.

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