Jan. 13 (Bloomberg) -- The U.S. trade deficit narrowed in November by the most in 12 years as tumbling oil prices and slumping consumer spending cut imports.

The gap shrank 29 percent, more than forecast, to $40.4 billion, the Commerce Department said today in Washington. A record 12 percent drop in imports propelled the improvement. Exports fell for a fourth straight month.

The drop in imports is unlikely to ease pressure on President-elect Barack Obama to take a harder line against countries such as China that U.S. steel and textile makers say unfairly benefit from an undervalued currency. Federal Reserve Chairman Ben S. Bernanke today warned that a fiscal stimulus won’t be enough to spur an economic recovery.

The contraction in exports and imports globally “makes it even more pressing” for the U.S. to reach agreements on lifting barriers to trade, said Mickey Kantor, former U.S. Trade Representative under President Bill Clinton and currently a partner at Mayer Brown LLP in Washington.

Economists had forecast the deficit would narrow to $51 billion, according to the median of 66 projections in a Bloomberg News survey. Estimates ranged from gaps of $39 billion to $58 billion. November’s deficit was the smallest in five years.

“The fact that this is a consumer-led recession means the U.S. trade balance is likely to continue to improve,” said Kevin Logan, a senior market economist at Dresdner Kleinwort in New York.

Impact on GDP

A shrinking deficit helps “cushion” the economy because it’s a boost to gross domestic product, Logan said. Morgan Stanley analysts changed their estimate for fourth-quarter GDP to a 5 percent annual pace of contraction, from 6 percent before.

Global trade is likely to keep contracting as commodity prices fall and the credit crunch causes consumers and businesses worldwide to pare spending.

The U.S. economy, the world’s largest, probably shrank 5 percent in the last three months of 2008 and will continue to contract through the first half of 2009, according to the median forecast of economists surveyed this month.

“Heightened systemic risks, falling asset values, and tightening credit have in turn taken a heavy toll on business and consumer confidence and precipitated a sharp slowing in global economic activity,” Bernanke said in a speech today in London.

Accelerating Drop

Trade has added to the U.S. economy since the first three months of 2007. After eliminating the effect of prices, which are the numbers used when calculating gross domestic product, the deficit dropped to $39.5 billion from $45.6 billion in October.

Imports fell to $183.2 billion, as demand for foreign crude oil, automobiles, computers and televisions sagged, reflecting the deepening slump in consumer and business spending.

The price of imported oil decreased by a record $25.30 a barrel to $66.72 in November, according to today’s report.

Imports from China also declined by the most on record, narrowing the politically sensitive trade deficit to $23.1 billion.

U.S. companies are likely to continue to press Obama to make good on campaign pledges to force China to raise the value of its currency, making that country’s goods more expensive to overseas buyers. Textile, steel and other U.S.-based manufacturers are among those asking for the imposition of limits on Chinese imports.

China’s Demand

Obama is less likely to acquiesce to such requests during times of economic stress, said Catherine Mann, an economics professor at Brandeis University in Waltham, Massachusetts, and a former Fed economist.

“We have a lot of history that shows the typical response to domestic economic weakening that includes import restrictions is probably never a good response,” Mann said in an interview. Obama’s “economic advisers know the importance of trade as part of a recovery in the economy.”

China’s economy will expand 7.5 percent this year, the slowest pace in almost two decades, according to a forecast from the World Bank. The lender also projects international trade will shrink this year for the first time in more than a quarter century.

“China’s economy is very vulnerable to the global downturn, so I would not anticipate that the new administration will put a lot of pressure on China to revalue in the short run,” Martin Baily, who was chairman of the Council of Economic Advisers in the Clinton administration and is now a senior fellow at the Washington-based Brookings Institution, said in an e-mailed note. “It may be a different story a couple of years from now.”

Exports Drop

Total U.S. exports dropped 5.8 percent to $142.8 billion, today’s report showed. Foreign purchases of automobiles were the lowest since October 2006.

Today’s report indicates international demand is no longer helping to support factories. The Institute for Supply Management said on Jan. 2 that its export gauge for manufacturers dropped to 35.5 in December, a record low.

Alcoa Inc., the largest U.S. aluminum producer, yesterday reported its first quarterly net loss in six years because of “historic” price declines and said demand for the metal may continue to weaken in 2009.

Chief Executive Officer Klaus Kleinfeld, said he may make deeper cuts in the company’s production and payrolls if demand continues to wane. Aluminum prices are near five-year lows as orders drop from automakers, builders and appliance manufacturers.

“The aluminum industry is caught up in a perfect storm of historic proportion,” Kleinfeld, 51, said on a call with analysts after posting the results. “Inventories are building and prices are decreasing. We are prepared to continue adjusting capacity to demand.”

The International Monetary Fund forecasts that advanced economies will contract simultaneously this year for the first time since World War II.

To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net

Last Updated: January 13, 2009 15:20 EST