U.S. exports dipped in January, the government said Thursday, but economists weren't fazed. They predict export growth will be a bright spot for American manufacturers through the rest of 2010.
President Barack Obama is banking on further improvement to help meet his ambitious goal of doubling exports within five years and creating 2 million U.S. jobs.
Economists question whether Obama's goals are achievable. But many think exports will keep expanding. A rebounding global economy and a resumption in the dollar's slide would help spark demand for U.S. goods.
This is expected to occur even though the dollar has risen against the euro over worries about Europe's debt crisis. A higher dollar makes U.S. goods more expensive for foreigners.
Obama laid out his export-promotion program in a speech Thursday. He called the effort key to repairing damage from a recession that's eliminated 8.4 million jobs.
"In a time when millions of Americans are out of work, boosting our exports is a short-term imperative," Obama said.
Before Obama spoke, the Commerce Department said the U.S. trade deficit unexpectedly shrank in January to $37.3 billion. That marked a 6.6 percent drop from December's $39.9 billion trade gap, the biggest in a year.
U.S. exports dipped a slight 0.3 percent. That reflected weaker sales of civilian aircraft and U.S.-made autos and auto parts. But imports dropped a larger 1.7 percent.
Imports of oil fell sharply, along with cars from Europe and Japan. Analysts viewed the drop in auto imports as a sign of sluggish demand for big-ticket items, not a sudden drop in demand tied to Toyota's vehicle recalls.
The small drop in exports marked the first decline after eight straight increases. Analysts said they think the decline was just a blip in a continued upward trend.
"We believe U.S. export growth will continue," said Nigel Gault, chief U.S. economist at IHS Global Insight. "This month's drop in trade volumes doesn't mean that the trade recovery is over."
But Gault and others expect imports to grow, too, reflecting stronger U.S. consumer demand. Overall, they expect the trade deficit to rise from last year's level of $378.6 billion. That was the smallest trade gap in eight years.
At the same time, they say the strength in exports will help sustain support for U.S. manufacturers, fueling economic growth this year. That's true even though the dollar has risen since early December against the euro, the common currency of 16 European countries. Investors have dumped euros over fears about the debt crisis in Greece.
Economists say they think the dollar's rise will be fleeting, given record-high U.S. budget deficits.
"At the margin, the euro's slide will make a difference by trimming our exports, but the damage will be fairly limited," said Nariman Behravesh, chief economist at IHS Global Insight.
At the start of December, it took $1.51 to buy one euro. On Wednesday it took only $1.37. That represented an increase in the dollar's strength of 9 percent.
The rise in the dollar's value against the euro will make U.S. products costlier in Europe. But the dollar's value hasn't changed in recent weeks against China's currency. That's the country with the biggest trade surplus with the United States.
China has held the yuan steady against the dollar to help Chinese exporters withstand the global economic crisis. The United States and other countries have pressed China to let its currency rise. American manufacturers contend that the yuan is undervalued by up to 40 percent. That's given Chinese companies a significant price edge.
So far, the Chinese have made no such moves. But private analysts say such an action could happen this year, given that China's economy survived the global recession better than other nations and its exports have been surging. China said Wednesday its exports rose 45.7 percent in February compared with a year earlier.
The U.S. trade report Thursday showed that the U.S. deficit with China edged up by 0.9 percent in January to $18.3 billion. That occurred even though imports from China fell to their lowest point since June.
The deficit with the European Union dropped 56.3 percent in January to $2.8 billion. The deficit with Japan fell 27.3 percent to $3.3 billion.
The 0.3 percent drop in exports of goods and services left the total at $142.7 billion; imports fell 1.7 percent to $180 billion.
One reason analysts don't expect the dollar's decline against the euro to persist is the soaring U.S. budget deficit. The deficit is being financed in large part by foreign investors.
The Congressional Budget Office last week projected that the debt held by investors would rise from $7.5 trillion at the end of last year to $20.3 trillion in 2020. It said the increase would boost interest payments more than fourfold, to $916 billion by the decade's end.
A debt load of this magnitude is expected to keep downward pressure on the dollar. Yet economists view a weaker dollar as a benefit in the longer run. They note it would help make U.S. exports more competitive and help narrow the trade deficit.
Forecasters at the National Association for Business Economics project that the trade gap will widen this year by 25 percent to $471.5 billion and to $490 billion in 2011. Those gains will reflect a jump in imports as the U.S. economy recovers. U.S. consumers will be buying more foreign goods, even as U.S. exports also rise.
Many economists say the European debt crisis' main threat to the U.S. economy isn't a temporary rise in the dollar's value. The biggest long-term risk, they say, is that a build-up in debt around the world will spook investors.
Worried foreign investors could start dumping U.S. Treasury securities and other dollar-denominated assets. That would cause U.S. interest rates to jump and stock prices to plunge.
Obama has vowed to address the deficit problem once unemployment is significantly lower. But skeptics doubt Washington politicians will take the painful steps needed to put the government's finances on a better footing. Those worries have been underscored by the crisis in Europe.
Mark Zandi, chief economist at Moody's Economy.com, expressed concern about a loss of confidence in America by foreign investors
The Greek crisis "highlights the threats posed by the U.S. budget deficit to our own economic recovery and long-term growth prospects," Zandi said.
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