The U.S. trade balance released for the month of December showed a surprising narrow of the deficit to -$58.8 billion compared to the expected reading of -$61.1 billion and the previous reading of -$63.1 billion.

The deficit shrank 6.9% to come in below expectations marking the largest decrease since 1991 and the first since 2001. Over the year, the trade gap also narrowed by 6.2% to $711.6 billion. In addition, the U.S. trade deficit with China also narrowed to $18.8 billion in December of this year from $18.9 billion in December 2006.

The narrowing of the deficit was driven by the decrease in imports and increase in exports. Exports rose to a new record high while imports fell for the first time in four months as higher petroleum prices affected them. Exports rose 1.5% to $144.3 billion after the U.S. exported an impressive amount of goods to China and South Africa while imports dropped 1.1% to $203.1 billion.

Exports were seen excessive in the industrial supplies capital goods and consumer goods sectors. Also, exports of civilian aircraft jumped 33.1%.

As for imports, with the Nation's petroleum deficit widening to 4.9% to a record $31.5 billion, the U.S. imported 300.8 million barrels of crude in December down from 303.4 million barrels in November.

In a different report, the US released its initial jobless claims for the week ending February 9 showing that 348 thousand filed for first time aids compared to the forecasted 343K but better than the previous reading of 356,000.

Investors waited for Mr. Bernanke to come up on the stands and after he was handed the microphone he stated that the FOMC has to evaluate the economy and adjust their policy accordingly to that. He also said, In part as the result of the developments in financial markets, the outlook for the economy has worsened in recent months, and

the downside risks to growth have increased.

As for inflation, he said that it is well anchored and that conditions in the labor market have softened. The worries remain that if their inflation fighting strategy was to become weak, it would make it difficult to sustain price stability and counter shortfalls in growth in the future. The Feds will closely monitor the inflation situation more generally.

Finally he mentioned that the Fed's policy stance must be determined according to the medium-term forecast for real activity and inflation as well as to the risks associated with it. He sees that there will be sluggish growth for the time being followed by faster pace of growth later in the year. Downside risks to growth remain but consumer price inflation will most likely moderate from the current rates. The FOMC will carefully evaluate incoming data that will give hints concerning the economic outlook in a timely manner to support growth and provide insurance against downside risks.

Dear reader, so far so good for the U.S. as positive signs are now shaping up a better picture in the minds of investors concerning the world's largest economy. Sit back and wait if anything else will add to the picture or will it get blurry once again…