By Don Miller

The U.S trade deficit fell to the lowest level in nearly six years in December as the recession continued to depress domestic need for imports and the spread of the global financial crisis slashed demand for U.S. exports, the Commerce Department reported yesterday (Wednesday). 

The trade deficit shrank to $39.9 billion in December, the fifth consecutive month it has declined, marking the second full year in a row the gap has contracted.

The string of smaller trade imbalances represents a reversal of a 16-year trend, as the deficit had increased consistently since 1991, when it was only $31.2 billion.

While it continued the recent downward slide, the trade deficit did not fall as far as many had hoped, according to Ian Shepherdson, economist at High Frequency Economics in New York.

“Despite the impact of the drop in oil prices and a one-time jump in aircraft exports, which we expected, the headline deficit did not fall as far as we had hoped thanks to a massive plunge in core exports,” Shepherdson wrote in a note to clients, CNN reported.

Economists had expected the trade gap to narrow to $35.7 billion, according to the median forecast in a Bloomberg News survey of 70 economists.

Imports in December dropped to $173.7 billion, the lowest since September 2005, as oil prices fell and consumers bought fewer foreign-made cars and trucks.
Exports, which have bolstered the U.S. economy since early 2007, will not provide much help in coming months, economists predict.  The weak dollar had made exports more affordable to foreigners but that trend has been reversed by a flight to quality as investors bought U.S Treasuries and sold other currencies.  

“The boost from trade has vanished,” Jonathan Basile, an economist at Credit Suisse Holdings (ADR: CS) in New York, told Bloomberg before the report. “U.S. demand is falling even faster than demand from our trading partners.