U.S. Trade Deficit Narrowed

The U.S. foreign trade deficit narrowed unexpectedly in January but it still was the second deepest deficit on record. December's record deficit was little revised. Consensus expectations had been for a January deficit of $43.0B.

Exports recouped part of the prior month's decline, but the year began roughly equal to a depressed 4Q02 average. Gains in exports were widespread amongst categories. Capital goods exports rose 2.5% (-3.9% y/y) but that followed a sharp 9.3% decline the month prior. Nonauto consumer goods exports actually showed real improvement by rising 6.9% (6.7% y/y). Exports of automotive vehicles, parts & engines rose 1.8% (8.6% y/y), up for the second consecutive month

The monthly decline in imports was surprising as weakness in the imports of goods more than offset the rise in oil imports. Capital goods imports fell 1.1% (6.6% y/y) following two months of solid gain. Imports of nonauto consumer goods fell 3.9% (15.5% y/y) after firm gains through much of last year. Auto imports fell 4.9% (10.4% y/y following a weak 4Q02.

Imports of industrial supplies and materials rose 1.1% (31.4% y/y). The quantity of crude petroleum imports fell 7.2% m/m (-10.8% y/y) but the price rose 14.8% (70.0% y/y).

The index of mortgage applications compiled by the Mortgage Bankers Association skyrocketed 26.7% last week following a 10.8% jump the prior week.

Applications to refinance jumped 34.9% and are roughly four times the level of this time last year.

Mortgage applications for home purchase fell slightly in the latest week. Nevertheless, they have recovered much of the decline last month.

Interest rates on a conventional 30-Year mortgage fell with the contract rate down to 5.42%. The effective rate (incl. points) fell to 5.73%. The effective rate on a 15-year mortgage dropped to 5.11% versus 5.55% averaged in December.