The U.S. trade gap narrowed in January, coming in better than expected. The international deficit in goods and services slipped to US$41.1 billion from an all-time high of US$44.9 billion in December.

“Even with the drop, January’s shortfall still represents the second largest deficit on record,” notes BMO Nesbitt Burns. “To put it in perspective, the January gap is still well above last year’s average monthly deficit of $36.3 billion, which itself was a record high.”

The narrowing in January was driven by a combination of both a rebound in exports (+1.6%) from depressed levels, as well as a pullback in imports (-2.0%) from elevated levels, BMO say. “Despite the many hurdles facing the global economy, there is an erratic recovery in U.S. exports underway — exports are now up 5.8% from year-ago levels, compared with a 2.6% drop for all of 2002.”

RBC notes that an increase in U.S. exports and a fall in U.S. imports carries mixed messages by indicating that foreign demand turned out better than expected, while domestic demand slipped.

BMO says that the persistence of plus-$40 billion trade deficits represents a lingering threat to the U.S. dollar. A soft greenback will likely be a part of the landscape for the medium term.

In other data, RBC comments that U.S. consumer confidence is slipping to dangerously low levels. The ABC News/Money Magazine consumer comfort index dropped by four points to a reading of -25, it reports. “This is just a stone’s throw away from the nine-year low registered earlier this year. A drop in perceptions of the health of the national economy was the biggest contributor to the overall decline.”