The U.S. trade deficit narrowed slightly in March, slipping to US$31.6 billion from an upwardly revised US$31.8 billion in February.

The market expected a gap of US$32.5 billion. “These figures make it unlikely that U.S. real GDP will be revised down significantly in Q1,” says BMO Nesbitt Burns. “The report is due out next Friday and a number around 6% for GDP growth is possible.”

BMO notes that exports rose 0.6% in March, more than the 0.3% imports rise. “This represents a surprisingly good monthly result, and concludes a good quarterly bounce,” it says.

RBC Financial Group economists say that the unexpected narrowing is not strong enough to change the prevailing view of a slowing pace of economic growth in March. “A small gain in the surplus on services topped a small widening of the goods trade deficit. Nevertheless, a narrowing of the trade deficit, however small it might have been, could well be positive for the U.S. dollar. Foreign exchange traders have recently become concerned about the ever rising U.S. external deficit and the country’s ability to finance it.”

“While better-than-expected, a U.S. trade deficit over US$30 billion monthly is obviously still a major imbalance,” warns BMO. “The figures should not be regarded as positive for the greenback. Moreover, downward pressure on U.S. inflation due to import competition, and reduced factory output due to loss of global market share remain ongoing trends affecting the U.S. economy.”

RBC also notes that the Michigan consumer sentiment index for early May was also released today. “It came in better than expected but, at 96, it is virtually at par with its level for March. Until the labour market shows more concrete signs of firming, U.S. consumer sentiment is not likely to improve much.”