The U.S. trade deficit in February unexpectedly narrowed to the lowest level in nine years as demand for Asian cars, toys and electronics collapsed. The gap shrank 28 percent, the biggest drop since October 1996, to $26 billion from a revised $36.2 billion in January, the Commerce Department said today in Washington. Imports dropped 5.1 percent, leading to declines in the deficits with Japan and China, and exports climbed from a two-year low. The smaller gap may cause economists to trim the projected drop in first-quarter economic growth as slowing demand by U.S. consumers and businesses hurts the nation’s trading partners even more than American factories. Still, shrinking economies in Europe and Asia will remain a drag on U.S. sales overseas, signaling the rebound in exports will be short-lived. “The bottom line is that the U.S. manufacturing base has become more dependent upon foreign demand for its products,” Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York, said before the report. “The fact that major U.S. trading partners are falling deeper into recession bodes negatively for the factory orders outlook.” Separate figures from the Labor Department today showed the number of Americans filing first-time claims for unemployment insurance exceeded 600,000 for a 10th consecutive week. Another report from the Labor Department showed the price of goods imported into the U.S. rose 0.5 percent in March. Less Than Anticipated The trade gap was smaller than the lowest estimate of economists surveyed by Bloomberg News. The median of 70 projections called for an unchanged reading at $36 billion. Forecasts ranged from deficits of $30 billion to $38.9 billion. February’s gap was the smallest since November 1999. Imports fell to $152.7 billion, the fewest since September 2004. Demand for foreign-made cars slumped to the lowest level since October 1996, as purchases of Japanese cars were cut almost in half. The trade gap with Japan dropped to the lowest level since 1984. American demand for consumer goods from abroad other than automobiles fell by $1.4 billion in February as purchases of toys, furniture, clothing, appliances and televisions all declined. The trade gap with China decreased to $14.2 billion, the smallest in three years. U.S. exports climbed 1.6 percent to $126.8 billion, as sales of pharmaceutical supplies, autos and telecommunications equipment improved, today’s report showed. Fading Support Federal Reserve officials last month said, “it was widely agreed that exports were not likely to be a source of support for U.S. economic activity in the near term,” according to minutes of the March 17-18 meeting released yesterday. “Several participants said that the degree and pervasiveness of the decline in foreign economic activity was one of the most notable developments since the January meeting,” the minutes showed. Forecasts are calling for a decline in global trade, sapping overseas demand for American-made goods. The World Bank last month projected trade will fall 6.1 percent worldwide. Earlier in March the World Trade Organization predicted a 9 percent drop. After eliminating the influence of prices, which are the numbers used to calculate gross domestic product, the trade deficit dropped to $35.6 billion, the lowest level since May 2001. Impact on GDP The narrowing may prompt some economists to say the world’s largest economy may not have contracted in the first quarter as much as they previously projected. Gross domestic product probably fell at a 5 percent annual pace in the first three months of 2009, according to the median estimate of economists surveyed earlier this month. The economy shrank at a 6.3 percent rate in the last three months of 2008, the most since 1982. Weak sales are contributing to job cuts as firms rein in labor costs to weather the recession, now in its second year. 3M Co., the maker of more than 55,000 products from Post-it Notes to electronic road signs, said it cut 1,200 workers, or about 1.5 percent of its workforce, from its payrolls in the first quarter. Employers cut 663,000 workers from payrolls in March, and the jobless rate surged to 8.5 percent, the highest level in more than a quarter century, the Labor Department reported last week.

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