Trade gap narrows sharply in quarter

WASHINGTON -- The deficit in the broadest measure of foreign trade narrowed sharply in the first three months of this year after setting an all-time high at the end of 2005.

America's current account trade deficit fell to $208.7 billion in the January-March quarter, down 6.5 percent from a $223.1 billion deficit in the final three months of last year, the Commerce Department reported yesterday.

The improvement exceeded expectations, although it still left the quarterly deficit at the second highest level on record and the equivalent of 6.4 percent of the US economy, down from 7 percent in the fourth quarter.

Analysts said rising oil prices will likely send the deficit in the current quarter to a new high, and they forecast that the imbalance for all of 2006 is on track to set a record for a fifth straight year.

``Even with the modest improvement at the start of the year, reducing the US current account deficit will be an exceptionally slow process," said Douglas Porter, an economist at BMO Nesbitt Burns, a Toronto investment bank.

In a second report yesterday, consumer sentiment in early June rebounded to 82.4 after a big drop in May, according to the University of Michigan's preliminary survey for the month. Economists were encouraged that consumers' expectations for future inflation dropped sharply, a development likely to be viewed favorably by the Federal Reserve.

The deficit in the current account is considered the best measure of America's international standing because it covers not only trade in goods and services but also investment and foreign aid.

So far, financing the deficit has not been a problem with foreigners more than willing to sell their cars, televisions, and computers to Americans and hold dollars in return. That money is invested in stocks, Treasury bonds, and other US assets.

However, the concern is that, at some point, foreigners will become less willing to hold US assets.