The U.S. monthly trade deficit narrowed more than expected to $58.21 billion in March with February's deficit downwardly revised to $61.7 billion from a previously reported $62.3 billion, according to the U.S. Census Bureau.

Brian Bethune, chief U.S. financial economist at Global Insight, said the big story was the decline in imports, which he said pointed towards "weak domestic demand overall," plus excess inventories.

Imports of consumer goods were down 2.8% in the month, capital goods fell 2.2% and ex-petroleum imports fell 2.7%, he noted.

On the export front, Bethune noted aircraft orders were down 31.9% in the month, "a surprising drop," while the broader trend is "not as terrific as one would expect given the level of strength overseas."

Overall, Bethune said the trend has been for stronger exports and weaker imports, but March saw a weaker-than-expected decline in imports, which is a positive for GDP growth. "Beyond that I wouldn't read much into it," Bethune said.

Paul Ashworth, senior U.S. economist at Capital Economics, said that broader trend won't hold up long with oil at $125 per barrel. He predicts that "the rocketing cost of imported oil will push (the deficit) back towards the record high of $67.4 billion reached in mid-2006 over the next few months."

"In many ways the trade data wasn't particularly encouraging, however, because it shows both exports and imports falling sharply," he added. "The only good news is that the 1.7% decline in exports was a little more modest than the 2.9% drop in imports."

March's total exports of goods and services came in at $148.51 billion, down from $151.19 billion in the prior month, while imports came in at $206.72 billion, down from $212.81 billion in the prior month.

March exports were $2.6 billion less than February exports of $151.1 billion. March imports were $6.1 billion less than imports of $212.8 billion.

"The bottom line is that demand is softening both abroad and in the U.S.," Ashworth said.

The goods deficit narrowed to $68.604 billion in March, down $3.5 billion from February's $72.091 billion while the services surplus came in at $10.394 billion, marginally advancing from February's $10.378 billion.

From March 2007, the goods and services deficit narrowed by $4.8 billion. Exports were up $20.0 billion, a 15.5% annual increase, while imports were up $15.1 billion, a 7.9% annual advance.

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