U.S., China talks at an impasse - White House, State Department

WASHINGTON (AFX) - The larger-than-expected narrowing in the U.S. trade  deficit for February signals that growth estimates for the first quarter will  be stronger than previously thought, economists said.      "Obviously it's a positive for GDP growth because the import decline was  pretty big, so I think it's consistent with a GDP number in the one to two  percent range," said Robert McGee, chief economist at Tokai Bank in New York.      The Commerce Department reported that the trade deficit for goods and  services narrowed to a seasonally-adjusted 27.0 bln usd in February from 33.3  bln in January. This is the lowest trade deficit since Dec 1999.      The deficit shrank as a result of a sharp increase in exports and a  record drop in imports. Exports contribute to GDP growth, while imports  detract from GDP growth.      "The improvement in the goods deficit is going to add one and three  quarters percentage points to growth," said Brian Jones, economist at Salomon  Smith Barney.      The goods-only trade deficit narrowed 16.1 pct to 32.0 bln usd in  February from the previous month. This is the lowest goods deficit since Dec  1999, and the largest monthly decline on record.       Economists had expected slower growth in the first quarter due to  weakness in the factory sector and also because businesses have been drawing  down their inventories. Strength in the trade sector could offset the impact  of the inventory drawdown.      "Trade is going to ameliorate the drag from inventories," Jones said.      McGee said it remains an open question whether the trade deficit will  continue to decline in the coming months, but said it is likely continue to  narrow.      "Probably the basic thing going on is that instead of getting worse, the  trade deficit is probably going to get a little bit better," McGee said.      Even those who had predicted negative first-quarter growth said they will  now 'pen their first-quarter forecasts in black ink'.      "We had been as pessimistic as anyone about first-quarter growth still  carrying a negative GDP figure, and it looks as if you are going to be  gathering back about at least half a percent to three quarters of a percent  on GDP growth, so we are looking for a small positive, maybe as much as a  half a percent in the first quarter because of the drop in the February  balance," said Cary Leahey, economist with Deutsche Banc/Alex Brown.      But Leahey cautioned that the narrowing deficit stems from an overall  slowdown in the U.S. economy.      "Having said that, the trade numbers were certainly yet another sign of  the slowdown in the economy and the inventory adjustment, because obviously  the economy's growth rate slows, the demand for imported products goes down,"  Leahey said.      He predicted the March deficit to rise slightly from February.      "If I were guessing on a number now, I'd probably pencil in some number  around 29 or 30 billion for the overall trade number next month," Leahey said.

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