WASHINGTON - THE US trade deficit fell a hefty 28.7 per cent in November to the lowest level in five years but the improvement comes amid a sharp contraction in global commerce, government data showed on Tuesday.

The US$40.4 billion (S$60.1 billion) deficit in international trade in goods and services in the penultimate month of 2008 was much lower than the US$51 billion forecast by analysts, and followed a revised US$56.7 billion chalked up in October.

While the deficit decline is a positive for statistical measures of the US economy, it underscored the global slump stemming from financial turmoil triggered by the US home mortgage crisis, analysts said.

'The key message from this report is bad news - it shows both export and import volumes contracting sharply as the global economy tumbles into recession,' said IHS Global Insight chief US economist Nigel Gault.

The narrowing November trade gap resulted from exports of US$142.8 billion and imports of US$183.2 billion, with contraction in both exports and imports, the Commerce Department said.

The trade deficit was the lowest since November 2003, it said.

A big part of the drop came from the massive drop in crude oil prices.

Petroleum imports fell 36.5 per cent to US$23.4 billion.

The politically sensitive trade deficit with China dropped 17.5 per cent to US$23.1 billion, the department said.

It pointed out that the fall in imports from the world's most populous nation of US$5.7 billion to US$28.3 billion was also a record.

Exports to China fell US$800 million to US$5.2 billion.

US imports dropped by 12 per cent in November, with purchases of automotive vehicles, parts and engines the lowest since August 2003, the Commerce Department said.

The November deficit with the biggest US trading partner Canada of US$3.3 billion was the lowest since June 2002, it said.

US import volumes are expected to fall faster than those of exports in 2009, with some experts predicting the monthly deficit to average around half the November figure.

The United States, the world's biggest economy and a key engine of global growth, has been in recession for more than a year with companies shedding jobs in record numbers amid plunging earnings and poor sales.

The trade data for November also showed a huge decrease in the manufactured goods trade deficit, said the US National Association of Manufacturers.

The more rapid fall in imports particularly cut the manufactured goods trade deficit dramatically - a US$13 billion improvement from November 2007, said association vice president Frank Vargo.

But he pointed out that it also confirmed 'the end of the manufactured goods export boom that had been the brightest spot in the US economy', saying the rapidly falling demand for imports overseas had almost across-the-board effect on US exports.

Ian Shepherdson, chief US economist with High Frequency Economics, said the sharp narrowing of the US trade deficit stemmed from a much bigger plunge in oil imports than expected, as the price of the key commodity also sank.

The deficit, he said, could help cushion falling US economic growth rates.

'The good news is that the drop in the trade deficit will provide support to the fourth quarter and, with carry-through, the first quarter US gross domestic product (GDP) numbers,' said Patrick O'Hare of Briefing.com.

But some experts said the US economy could have contracted by up to six percent in the last quarter of 2008 and the improvement in trade deficit may not help much.

'From a purely GDP accounting perspective, it looks as if the trade gap will not subtract as much from real GDP growth in the fourth quarter as we expected,' said RDQ Economics in a report.

The firm expects real GDP to shrink at a 4.75 per cent pace in the fourth quarter. -- AFP