Trade deficit at lowest level since November 1999

WASHINGTON (AP) — The U.S. trade deficit fell to the lowest level in more than nine years in May as exports posted a small gain, and the weak American economy pushed imports down for a 10th straight month.

The slight rebound in exports, combined with a slower pace of decline in imports, showed that the nosedive in global activity may be starting to ebb. Delayed revivals overseas likely will hinder a rebound in the U.S., but most analysts still expect the American economy to grow a bit later this year.

The Commerce Department said Friday the deficit narrowed to $26 billion, a drop of 9.8 percent from April and the lowest level since November 1999. Economists expected the deficit to widen to $30.2 billion in May.

So far this year, the deficit is running at an annual rate of $350 billion, about half of the $695.9 billion deficit for all of 2008. Economists believe that trend will continue as weakness in the U.S. depresses demand for imported goods.

“I think this was a very positive report and consistent with the idea that the U.S. recession will come to an end in the next few months,” said Mark Zandi, chief economist for Moody’s Economy.com.

The dwindling deficit reflects the prolonged U.S. recession, which has sharply reduced American demand for imported goods. U.S. exports also are down from last year’s peaks, hurting American manufacturers, but those declines have been smaller than the plunge in imports.

Sal Guatieri, a senior economist at BMO Capital Markets, said the much slower pace of decline in imports showed consumer spending may improve in the coming months. He’ll be watching imports of appliances and clothing for early signs of a consumer rebound.

The politically sensitive deficit with China rose 4.4 percent to $17.5 billion in May, but is running 12.6 percent below the record pace of last year. The Chinese government reported earlier this week that its exports and imports fell again in June, but that the declines were less severe than in May, providing further evidence that the world’s third-largest economy also was recovering from its slowdown.

America’s deficit with Canada, its largest trading partner, dropped to $628 million, the smallest monthly imbalance in 15 years. The deficit with Japan shrank to $1.9 billion, the lowest deficit with that country in more than two decades.