US March trade gap thins on import drop

A record drop in US imports because of slowing domestic demand took a big bite out of the US trade deficit in March despite record high oil prices.

The trade gap shrank 5.7 per cent in March to $US58.2 billion ($A61.7 billion), the Commerce Department reported on Friday, much smaller than expected.

The decline reflected another strong month of US exports and a record $US6.1 billion ($A6.5 billion) drop in imports to $US206.7 billion ($A219.2 billion), which showed the US slowdown has taken a toll on consumer and business demand for foreign goods.

"Trade continues to be a huge support for the US economy. Export demand is holding up well," said Nigel Gault, chief US economist at Global Insight.

"Meanwhile, much of the slowdown in US domestic spending is being passed on to the rest of the world through lower imports."

The narrowing trade gap means the US economic growth was somewhat stronger than first estimated. Based on the trade data, Gault said he expected the government to raise its estimate of first quarter US economic growth to 0.9 per cent, from an initial reading of 0.6 per cent last month.

Ian Shepherdson, chief US economist with High Frequency Economics, pegged first quarter growth at 1.1 per cent because of a stronger-than-expected contribution from trade.

US Commerce Secretary Carlos Gutierrez said the March data showed a "very strong close to the quarter".

Compared with first quarter 2007, US exports are up 17.6 per cent, while imports have increased 12 per cent, he said.

The economy is still not performing as well as it could, but Congress should wait to see the results of a recent $US152 billion ($A161.2 billion) economic stimulus package before passing new legislation, he told Reuters.

"Obviously, we're looking at data every single day and talking about this every single day, but let's see how this works," Gutierrez said.

US markets paid little attention to report, focusing instead on renewed concerns about the financial services sector after American International Group, the world's largest insurer, posted a record $US7.8 billion ($A8.3 billion) quarterly loss.

The Dow Jones Industrial Average was down more that 1 per cent. The US dollar was lower, but US government debt prices rose.

Average oil prices jumped more than $US5 per barrel in March to a record $US89.85, compared to $US53 in the same month last year. As prices have move skyward, the volume of oil imports fell in March to 8.99 million barrels a day - the lowest since February 2003 and well below the 2007 average of 10.1 million.

US exports retreated slightly in March, but were still the second highest on record at $US148.5 billion ($A157.5 billion). Although exports of US aircraft, autos, and consumer goods all fell in March, overall shipments to the European Union and South and Central America set records during the month.

Before the March decline, US exports had set records in 12 consecutive months - helping to keep the US economy afloat during a time of turmoil brought on by a housing slump and spreading liquidity crisis.

"In general, the narrowing trade gap has reflected a rise in exports, helped by a weaker dollar and higher demand outside of the US," said James O'Sullivan, economist with UBS Securities in Stamford, Connecticut.

The closely-watched US trade deficit with China narrowed to $US16.1 billion ($A17.1 billion) in March, the lowest in two years. US exports to China jumped 10 per cent to their second highest on record, while imports from that country fell 7 per cent.