WASHINGTON - A worldwide drop in demand for goods cut the U.S. trade deficit in December to the smallest in nearly six years, while U.S. applications for new mortgages tumbled nearly 25 percent last week as potential buyers held out for better terms.
The $39.9 billion trade gap was the smallest since February, 2003, as both imports and exports fell for a fifth straight month, the U.S. Commerce Department said yesterday.
"The clear message is that global trade activity has collapsed, as the world economy sinks deeper into recession," said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Mass.
The deficit shrank even more dramatically in November to a revised $41.5 billion, from $57.2 billion in October, as businesses and consumers scaled back purchases in response to increasingly grave economic news.
The December trade data suggests the U.S. economy may have shrunk about 5.0 percent in the fourth quarter rather than the government's current estimate of 3.8 percent, Goldman Sachs economists said.
Chinese trade figures for January, released yesterday, showed China's exports fell 17.5 percent from a year earlier, after a 2.8 percent decline in December.
China's imports plunged 43.1 percent, twice as much as December's 21.3 percent year-on-year drop, the General Administration of Customs said. Both falls were the steepest since economists' records began in 1993. China's imports and exports have now fallen for three months in a row from year-earlier levels.
Both U.S. exports and imports set a record for all of 2008 and the overall trade gap declined for the second year in a row to $677.1 billion.
The U.S. trade deficit with China in 2008 hit a record $266.3 billion as imports from that country rose to a record $337.8 billion. U.S. exports to China last year were a record $71.5 billion.
Meanwhile, requests for loans to buy homes sank last week to an eight-year low, the Mortgage Bankers Association said.
Buyers have postponed plans to purchase a house on expectations that the government could press 30-year home loan rates down to near 4 percent and institute a $15,000 home-buying tax credit. At the same time, home prices continue to fall, adding to the incentive to wait.
"In addition to waiting for the rate, you have home prices continuing to come down, so why would I pay $200,000 today when I can pay maybe $180,000 in a couple months or even $150,000," said Daniel Penrod, analyst for the California Credit Union League in Rancho Cucamonga, Calif.
Average 30-year mortgage rates slipped to 5.19 percent last week from 5.28 percent a week earlier.