Trade deficit narrows sharply, points to stronger GDP

The U.S. trade deficit shrank in December to its narrowest in nearly three years, suggesting the economy did much better in the fourth quarter than initially estimated.

The country's trade gap narrowed to $38.5 billion during the month, the Commerce Department said on Friday. Analysts polled by Reuters had expected a deficit of $46 billion.

That suggests the U.S. government will revise upward its advance reading for fourth-quarter gross domestic product, which showed the economy contracted at a 0.1 percent annual rate in part because of a decline in inflation-adjusted exports.

The government had released its estimate for fourth-quarter GDP before the December trade data was available. That GDP report suggested the government was projecting a wider trade deficit in December.

Friday's data showed U.S. exports surged by $8.6 billion during the month, boosted by sales of industrial supplies, including a $1.2 billion increase of non-monetary gold. In a reflection of a boom in oil output driven by hydraulic fracturing technologies, petroleum exports rose by nearly $1 billion during the month to a record high level.

A fall in petroleum imports led overall purchases from abroad to decline $4.6 billion in December. For the entire year, the country's imports of crude oil fell to their lowest levels since 1997 in terms of volume.

For all of 2012, the U.S. trade gap fell by 3.5 percent to $540.4 billion. Running trade deficits means the country bleeds dollars, so trade is still a drag on the U.S. economy. But rising exports are helping it to be less of a drag than in prior years.

Exports last year rose 4.4 percent.

While the overall trade deficit shrank, it grew with China during the year. That will be sure to raise hackles from American manufacturers who want the United States to pressure the Asian giant more to strengthen its currency.

But even the figures on China had a silver lining. While U.S. imports last year from China increased to a record high, so did America's exports to the country. America's December trade deficit with China for goods, which was not seasonally adjusted, narrowed by $4.5 billion on a drop in imports.

The U.S. trade deficit increased with the European Union last year but America's surplus with Brazil rose.

(Reporting by Jason Lange; Editing by Neil Stempleman)