AP News

Ahead of the Bell: US trade gap

WASHINGTON (AP) — The trade deficit likely narrowed in December, offering the prospect that growth at the end of last year was slightly stronger than previously believed.

Economists were forecasting that the trade deficit fell in December to $46 billion from $48.7 billion in November, according to a survey by FactSet. The Commerce Department will release the report at 8:30 a.m. EST Friday.

The report on the trade deficit as well as a second report Friday on wholesale stockpile growth will give a more complete picture of fourth-quarter growth.

November's deficit was the widest in seven months because imports outpaced a modest gain in exports. The import increase was led by a huge increase in shipments of foreign-made cell phones.

Fewer exports were one of the reasons that the economy shrank at an annual rate of 0.1 percent in the October-December quarter. Adding to the weakness during that period was a sharp slowdown in stockpiling by businesses.

However, there was an expectation that if Friday's reports show a lower trade deficit and more inventory building by wholesale businesses, that could result in an upward revision in overall economic growth that would boost the small 0.1 percent negative rate to a slight positive.

More restocking leads to more factory production which can boost economic growth. A smaller trade deficit means less of a drag on the economy. While sluggish growth in stockpiles kept the economy from growing in the October-December quarter, economists say inventory growth should rebound in the current quarter.

The trade deficit with China, the largest imbalance with any country, is expected to set a new record for all of 2012. That would add to pressure on the Obama administration and Congress to take a harder line on China's trade practices, which critics contend give the Chinese an unfair advantage over U.S. companies and workers.

American manufacturers contend that China is still manipulating the value of its currency to keep it artificially low against the dollar to make Chinese products cheaper in the United States and U.S. products more expensive in China.

"The record trade deficit with China will not disappear on its own," said Scott Paul, president of the Alliance for American Manufacturing. "Congress and the administration must take on currency manipulation ... and China's persistent cheating on its trade obligations."

Through November, the trade deficit was running at an annual rate roughly 2.4 percent lower than in 2011. Many economists believe that trade will be a small positive for the economy in 2013.

That forecast is based on an assumption that the European debt crisis will stabilize, helping boost U.S. exports to that region, and economic growth in Asia will continue to rebound.

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