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(Bloomberg) — The trade deficit in the U.S. narrowed more than forecast in April as imports receded, signaling merchandise flows were returning to normal following a port-related surge.

The gap shrank by 19.2 percent to $40.9 billion from the prior month’s $50.6 billion that was the widest in more than three years, Commerce Department figures showed Wednesday in Washington. The median forecast in a Bloomberg survey of 72 economists called for a deficit of $44 billion. Purchases of foreign-made goods declined after the end of a labor dispute at West Coast ports caused them to jump in March.

Trade may become less of a detriment to the world’s largest economy as a more stable dollar and strengthening markets in Europe underpin overseas demand for American-made goods. At the same time, crude-oil production will probably continue to limit imports after the U.S. petroleum gap fell in April to the lowest level in 13 years.

“The trade gap returned to more normal levels after an inordinately large increase,” said Guy LeBas, chief fixed- income strategist at Janney Montgomery Scott LLC in Philadelphia, who projected the deficit would shrink to $39.5 billion. “That starts off the second quarter on a reasonably positive note.”

Payrolls Expanding

Companies added more workers in May than the prior month, a sign U.S. job growth is getting back on track after a slow start to the year, another report showed Wednesday. The 201,000 increase in employment followed a revised 165,000 gain the prior month, according to figures from Roseland, New Jersey-based ADP Research Institute.

Stock-index futures held earlier gains after the reports as investors weighed Greek debt talks and the European Central Bank kept interest rates on hold at record lows. The contract the Standard & Poor’s 500 Index maturing this month climbed 0.4 percent to 2,114.8 at 8:55 a.m. in New York.

Bloomberg survey estimates ranged from deficits of $39.5 billion to $49.5 billion. The 19.2 percent narrowing of the gap in April was the biggest drop since February 2009.

March’s deficit was the largest since January 2012. It was initially reported as a $51.4 billion shortfall.

Imports Recede

Imports declined 3.3 percent to $230.8 billion, after jumping 6.5 percent in March when West Coast ports cleared backlogs following the end of a labor dispute. Purchases of foreign-made cellular phones and clothing were among those showing the biggest declines.

The value of crude-oil imports was little changed at $11 billion compared with $10.5 billion in March. An increase in U.S fuel exports allowed the trade deficit in petroleum products to shrink to $6.8 billion, the smallest since March 2002.
Excluding petroleum, the trade shortfall declined to $34.1 billion from $43.1 billion in March.

In April, total exports increased 1 percent to $189.9 billion, the most this year, on increased shipments of aircraft and telecommunications equipment, Wednesday’s data showed.

After eliminating the influence of prices, which renders the numbers used to calculate gross domestic product, the trade deficit shrank to $57.2 billion from $66.4 billion. The April reading was slightly smaller than the $57.6 billion average for the first quarter, indicating trade is so far having little effect on GDP.

Trade Drag

Figures released May 29 showed that for the quarter ended in March, a surge in imports led the trade gap to widen more than previously projected by the government. That subtracted 1.9 percentage points from growth, the most since 1985.
The economy shrank at a 0.7 percent annualized rate in the first quarter, also held back by harsh winter weather and an energy-related slowdown in investment in addition to a strong dollar and delays at ports.

After slumping as the dollar climbed about 20 percent since the end of June 2014, exports may stabilize now that the currency is steadying.
Also, growth in Europe is projected to improve and inflation is ticking up. The European Central Bank is in the early days of a 1.1 trillion-euro stimulus ($1.2 trillion) program that policy makers intend to run the program until at least September 2016.
In the U.S., the combination of more jobs, lower gasoline prices and low borrowing costs are likely to help lift household purchases, which account for almost 70 percent of the economy. Policy makers also expect growth to pick up, one reason they’re considering raising the benchmark interest rate that they’ve held near zero since December 2008.

“Households are seeing the benefits of the improving jobs situation,” Fed Chair Janet Yellen said in a May 22 speech in Providence, Rhode Island. If the economy continues to improve as she expects, “it will be appropriate at some point this year” to start raising rates, she said.

–With assistance from Alexandre Tanzi in Washington.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net To contact the editors responsible for this story: Carlos Torres at ctorres2@bloomberg.net

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I guess people will attribute this to Obama’s wonderful fiscal leadership, forgetting that it took 8 years to get here!—-W.