While Canada is enjoying a bigger than expected trade surplus, the U.S. is dealing with a larger than expected trade deficit.

The U.S. trade deficit widened more than expected to US$28.5 billion in January from a downwardly revised US$24.7 billion in December. Bank of Montreal says that the deterioration in the trade balance reflected a sharp increase in imports and a slight decline in exports. “The January trade data suggest that net exports will temper overall activity in the first quarter, though annualized GDP growth of 3.5% is still likely. Moreover, the upward revision to December data suggests the Commerce Department’s preliminary estimate of fourth quarter growth — 1.4% annualized — could be revised slightly higher.”

“It’s important not to draw strong conclusions from one month’s data,” cautions BMO Nesbitt Burns, before doing just that, saying “However, these numbers lean toward a moderate follow-through after a good Q1 economic pickup. The U.S. is laboring under the weight of a super-strong dollar. Moreover, economies around the world are generally languishing, making the huge U.S. market a tempting target for producers with excess capacity. This is a situation where stimulus in the U.S. might end up helping producers in the Far East more than those in the U.S. heartland.”

RBC Financial Group economists say, “Both vibrant consumer demand and resurgent corporate investment spending represent good economic news for all those countries looking for signs that the U.S. is ready to lead a world recovery. There is a strong likelihood the U.S. trade deficit will remain large this year, which increases the focus on the U.S. dollar. For it to remain strong in the face of weak exports and rising imports, foreign purchases of U.S. dollar-denominated investments must remain high, which would require a rising stock market and/or higher U.S. interest rates. For a safe bet, choose the latter.”

BMO Nesbitt concludes with caveated conclusions again, saying, “The trade figures carry too little weight to be a big deal. Having said that, today’s report is an arrow in the Greenspan quiver, which he can shoot at the hawks on the FOMC who are attempting to draw him into a preemptive tightening posture. Alan the gradualist will want to go slow and make sure higher rates are the right medicine for this very low inflation environment.”