U.S. businesses sold more industrial supplies, chemicals and farm products in the final three months of last year, pushing the deficit in the broadest measure of foreign trade down for the first time since the spring of 2009.
The current account trade deficit fell 9.7 percent to $113.3 billion in the October-December period, the Commerce Department reported Wednesday. It marked the first drop in the deficit after five consecutive quarterly increases and pushed the trade gap to its lowest point since early 2010.
While the fourth quarter deficit shrank, economists expect that the first quarter deficit will widen significantly, reflecting surging oil prices.
The devastating earthquake in Japan is expected to have only a modest impact on the trade deficit this year. It will likely lower imports from Japan at least temporarily while boosting U.S. exports of goods needed in the rebuilding effort.
The current account is the broadest measure of foreign trade because it includes not only trade in merchandise and services but also investment flows and foreign aid.
For all of 2010, the current account deficit rose to $233.3 billion, a 24.3 percent increase from the previous year and the highest annual imbalance in two years. The 2009 deficit had fallen to $216.1 billion, the smallest level in a decade, as a deep recession in the United States cut into demand for imported goods.
The 2010 deficit was 3.2 percent of the country's total economy. That was up from 2.7 percent in 2009 but still well below the record of 6 percent of the gross domestic product in 2006 when the current account deficit surged to an all-time high of $802.6 billion.
Economists closely watch the size of the current account deficit because it represents the amount of money the United States is transferring into the hands of foreigners.
The deficit in the July-September quarter was $125.5 billion, the fifth consecutive quarterly gain. While economists expect the deficit to resume rising in 2011, they do not believe it will approach the record levels of 2006. They expect a weaker dollar to bolster sales of U.S. exports.
"We expect the widening trend to resume and continue through 2011 as the ongoing expansion of the U.S. economy bolsters import growth," said Nicholas Tenev, an economist at Barclays Capital Research.
Many economists believe the deficit in the April-June quarter will show a smaller trade gap with Japan. That forecast is based on the view that the Japanese production of autos and other products will be curtailed by the disruptions caused by last week's earthquake and an ensuing nuclear crisis while Japanese demand for U.S. building supplies will increase.
A widening trade deficit hurts the U.S. economy. When imports outpace exports, it means more U.S. jobs are going to foreign workers.
The government reported last week that the trade deficit in just goods and services increased 15.7 percent in January to $46.3 billion as imports rose at the fastest pace in 18 years.
That big gain reflected a surge in oil prices and analysts expect America's oil import bill to rise further in February and March, given that Mideast political turmoil has sent oil prices surging above the January levels.
In January, the monthly deficit in merchandise trade with Japan shrank by 15.6 percent to $5 billion. For all of 2010, the U.S. deficit with Japan grew by 33.9 percent to $59.8 billion, up from a 2009 deficit of 2009 of $44.7 billion.
(This version corrects historical reference to show deficit lowest since early 2010 and first decline since spring 2009)