By Doug Palmer
WASHINGTON (Reuters) - The U.S. trade deficit widened much more than expected in January as higher oil prices and surging imports of capital goods and cars overpowered record exports in a signal of strengthening domestic demand.
The trade gap grew by 15.1 percent to $46.3 billion from $40.3 billion in December, the Commerce Department said on Thursday. Analysts had expected a deficit of $41.5 billion.
The shortfall in trade with China, a sore point in bilateral relations, grew 12.5 percent to $23.3 billion.
With more domestic demand being sated by overseas production, some economists said they would likely reduce their forecasts for first-quarter U.S. economic growth by about a half percentage point to around a 3 percent annual rate.
Anthony Chan, chief economist for private wealth management at JPMorgan in New York said that pace would be "barely enough" to make headway in reducing unemployment. "We obviously would make a lot more progress at 3.5 percent," he said.
A second report from the Labor Department showed new claims for jobless benefits rose 26,000 last week to 397,000. While economists had looked for a smaller increase, they said the gain was not enough to suggest the labor market recovery was running off the rails.
The rise in claims, fears of unrest in top oil producer Saudi Arabia and a ratings agency downgrade of Spain pushed U.S. stocks lower. The Dow Jones industrial average dropped the most in seven months, while Treasury debt prices rose. The dollar rose against the euro and the yen.
Oil prices shot up in January as economic recovery in the United States and the rest of the world picked up steam. Prices jumped significantly more last month on political turmoil in North Africa and the Middle East. On Thursday, benchmark Brent crude closed at $115.43 a barrel.
A related surge in U.S. gasoline prices has helped undermine public confidence in the way the country is going, posing a fresh challenge to President Barack Obama. A Reuters/IPSOS poll on Wednesday showed 64 percent of those surveyed believe the country was on the wrong track, up seven points from February.
Reports on Friday are expected to show gasoline prices helped lift U.S. retail sales by 1 percent in February, while pulling down consumer sentiment this month.
The Fed's policy-setting panel is likely to nod to higher commodity prices in a statement after a meeting on Tuesday, but analysts feel officials will not see a grave enough threat to either growth or inflation to alter policy.
NOT JUST OIL
Increased non-oil imports in January also played a big role in the wider trade gap.
"To the extent that this surge reflects the strength of domestic demand, particularly restocking, it isn't necessarily a disaster," said Paul Ashworth, chief U.S. economist with Capital Economics in Toronto.
"Nevertheless, it is a concern, particularly when we know that the latest surge in the cost of imported oil will drive the deficit above $50 billion over the next few months," he added.
Imports totaled $214.1 billion in January, as oil prices rose to their highest level since October 2008 and imports of capital goods and foods, feeds and beverages set records.
U.S. auto imports were the highest since February 2008.
Exports grew 2.7 percent to a record $167.7 billion.
Obama has set a goal of doubling exports to more than $3 trillion by the end of 2014 to put the U.S. economy on more stable footing.
JPMorgan's Chan said that goal will be difficult to meet without a "a major collapse in the dollar."
Republicans in Congress are threatening to block action on a free trade agreement with South Korea expected to increase U.S. exports by at least $10 billion to $11 billion annually, unless Obama also sends two other long-delayed pacts with Colombia and Panama to Congress for approval.
The U.S. Chamber of Commerce claims 380,000 jobs are at risk if Congress does not pass the pacts.
The increase in the trade gap with China in January spurred fresh calls for Washington to get tough with Beijing.
The Obama administration has pressed China to let its currency rise more rapidly in value and take other steps to reduce its dependence on exports to fuel economic growth.
At the same time, U.S. officials have said the United States needs to move away from an economy based on consumer demand to one driven more by domestic production and exports.
Despite a commitment on both sides to rebalance growth, the U.S. trade deficit with China widened again in January after growing to a record $273 billion in 2010.
Separately, China said its trade surplus with the United States shrank to $8 billion in February from $13.6 billion in January, but that report was distorted by the Lunar New Year holiday.
(Reporting by Lucia Mutikani and Doug Palmer; Editing by Andrew Hay)