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Trade Gap Widens, Consumer Confidence Off WASHINGTON (Reuters) - The U.S. trade deficit widened nearly 11 percent in December as strong U.S. economic growth pulled in record imports and exports inched lower despite a weaker dollar, a government report showed on Friday. The monthly trade gap hit $42.5 billion, well above the $40.0 billion deficit analysts had forecast. The December figure pushed the 2003 trade shortfall to a record $489.4 billion, up 17 percent from 2002. Meanwhile, a closely watched survey of consumer sentiment was sharply lower in early February, showing Americans turned increasingly cautious on the economy. Analysts say weak jobs creation has dampened consumer confidence despite a strengthening U.S. economy. The University of Michigan index of consumer confidence slumped to a surprisingly low 93.1 in February, reversing January's hefty rise to 103.8. The near-record December trade gap pushed the dollar lower as traders fretted that the currency's decline of 13 percent against a basket of currencies since early 2002 was not enough to fix global trade imbalances. The sharp fall in consumer confidence sent U.S. Treasury prices higher as investors saw it as more evidence the Federal Reserve would be in no rush to raise interest rates. PRICE IMPACT The burgeoning trade deficit has put downward pressure on the U.S. dollar -- which has the potential to create inflationary pressures as Americans pay more for imported goods. "(The data are) suggesting the decline we've seen in the dollar over the last couple of years is not having an impact. It suggests the dollar may still need to fall to help narrow the trade deficit. But there's a risk to higher inflation if it does," said Gary Thayer, chief economist at AG Edwards & Sons in St. Louis. A separate Labor Department report showed the price of imported goods rose sharply in January, a sign the weaker dollar may finally be making itself felt on the price end. U.S. import prices rose 1.3 percent last month, the biggest climb since February 2003, after a revised 0.5 percent advance in December, the Labor Department said. Wall Street had forecast a milder 0.4 percent gain. In testimony this week to Congress, Fed Chairman Alan Greenspan seemed comfortable with the dollar's decline, saying foreign companies had so far been able to absorb the impact. He said the weaker currency would also eventually help contain the trade gap as foreign producers export less to the United States. Analysts said the larger-than-expected trade deficit could require the government to trim its estimate of fourth-quarter economic growth, currently pegged at 4.0 percent. "It's probably going to knock about 0.4 percent off GDP revisions for the fourth quarter," said David Sloan, an economist with 4Cast in New York. Imports reached a record $132.8 billion in December, led by higher inflows of petroleum and other industrial supplies. Imports of capital goods such as computer accessories and civilian aircraft and consumer goods like televisions and pharmaceuticals also contributed to the month-on-month gain. Imports from the European Union in December hit a record $23.1 billion, while imports from China retreated slightly during the month to $13.2 billion. U.S. exports were fractionally lower at $90.4 billion, led by a large drop in civilian aircraft and other capital goods shipments, and smaller falls in food and consumer goods. But monthly shipments were still nearly $10 billion above December 2002 levels, a sign the dollar's fall helped boost exports over the last year. Despite December's large jump in the trade gap, some analysts said there was evidence it may have peaked. "The way I'm looking at it is as an average of two months, which would be about $40 billion per month ... Looking through the trend here, it looks like the trade deficit is stabilizing." said Jay Bryson, global economist at Wachovia Securities in Charlotte, North Carolina. The record trade gap for all of 2003 included record bilateral trade deficits of $124 billion with China and $94.3 billion with the European Union. U.S. imports increased 8.3 percent to a record $1.51 trillion in 2003, aided by record volume and value for crude oil imports and the highest average oil prices since 1984. Back to Original Article: News You Can Use
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