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Imports fall, improving U.S. trade balance

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Although this trend on the import side is prompted largely by negative circumstances – a falling dollar, a housing slump, and the squeeze of higher energy costs – it has some positive implications.

For example, the shift means that some longstanding imbalances in the global economy may be starting to ease. The result could be a shrinking US trade deficit and a rebound for US manufacturers, as they sell more to both domestic and overseas buyers.

"We can't continue to rely on foreign capital," Mr. Wyss says, referring to money inflows that have effectively financed large trade deficits and low household savings rates in the US.

One sign of how this trade shift is already having some positive effects came in new numbers on the gross domestic product (GDP), released Thursday. The Commerce Department said the US economy grew at a 0.9 percent pace for the quarter, up from its preliminary estimate of 0.6 percent GDP growth for that quarter.

One reason was that commercial construction did better than initially estimated. But a decline in imports – larger than earlier estimated – also played a central role.

Think of it this way: When exports rise, US output is rising. But imports are counted as a subtraction from GDP, because they mean that less of what consumers buy is made in the US.

For the past two quarters, imports have been falling. In the first three months of this year, imports fell at a 2.6 percent annual pace. Imports downshifted by 1.4 percent in the fourth quarter of 2007.

Several forces are causing the retrenchment in imports. The dollar now buys a lot less against the euro or the Chinese yuan, due to recent trends in exchange rates.

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