Trade Gap in US Swells to 6-Year High as Imports Surge
The gap increased 43.1%, the biggest jump in 18 years, to $51.4 billion, the largest since October 2008, the Commerce Department reported May 5. The shortfall exceeded the highest estimate of 70 economists surveyed by Bloomberg News. Purchases of foreign-produced foods, capital goods and consumer products set records, and demand for petroleum dropped.
Containerships streamed into West Coast harbors in March after port operators and dockworkers negotiated a new contract, allowing the flow of imported and exported goods to resume. At the same time, steady employment gains, a nascent pickup in wage growth and a stronger dollar also may help fuel domestic demand for foreign goods, which will keep the deficit wide.
“The ending of the port strike seemed to really only have a material effect on imports, not on exports,” said Michael Feroli, chief U.S. economist at JP Morgan Securities in New York and the second-best forecaster of the trade balance over the past two years, according to data compiled by Bloomberg. “When we smooth through the data, it looks like the trend in imports is moving higher whereas the trend in exports looks kind of soft.”
Stock-index futures extended earlier losses after the report and the dollar fell. The contract on the Standard & Poor’s 500 Index maturing in June declined 0.3% to 2,103.9 at 8:40 a.m. in New York. The dollar index decreased 0.1%
The median forecast of economists surveyed by Bloomberg projected a widening to $41.7 billion. Estimates ranged from deficits of $36.5 billion to $46.5 billion. The Commerce Department revised the shortfall for February to $35.9 billion from an initially reported $35.4 billion.
Imports increased 7.7% to $239.2 billion, the most this year, from $222.1 billion in February. Capital goods such as industrial machines and computers, automobiles and parts and consumer products, including cellphones, clothing and furniture, flooded in as the backlog at West Coast ports subsided.
Crude oil was less in demand as the United States continued its trajectory toward energy independence. The value of petroleum imports was the lowest since September 2004, making the fuel’s trade gap the smallest in almost 13 years.
Excluding petroleum, imports were a record.
While exports also rose, the increase was swamped by the surge in imports, a sign that global demand remains weak. Sales of American-made products to customers overseas climbed 0.9% to $187.8 billion from $186.2 billion in February.
After eliminating the effects of price fluctuations, which generate the numbers used to calculate gross domestic product, the trade deficit widened to $67.2 billion in March, the largest in eight years.
The bigger-than-projected jump in the deficit probably means the economy contracted in the first quarter when the Commerce Department issues revisions later this month.
The latest data showed the world’s largest economy grew at a 0.2% annualized pace in the first quarter after advancing at a 2.2% rate in the previous three months. A widening trade gap subtracted 1.25 percentage points from growth. The government will incorporate May 5's data into the revised figures on gross domestic product.
“For the first quarter, this has some pretty adverse implications for GDP growth,” Feroli said . He now sees GDP contracting at a 0.5% rate in the first three months of the year. “That import number is really eye-catching.”
Foreign exchange fluctuations probably are affecting U.S. companies’ ability to stay competitive in a global market as a stronger dollar makes imported goods cheaper and domestically made goods more expensive for trade partners to buy.
Even after losses in April, the dollar still is the best-performing major developed currency over the past year, gaining 17.5%, according to Bloomberg Correlation-Weighted Indexes. The euro dropped 8%, while the Japanese yen fell 2.1%, according to the indexes.
At the same time, U.S. consumers with more jobs and higher pay at their backs may be ramping up demand for foreign-made goods, exacerbating the trade gap.
“The first-quarter weakness is temporary, but the part that’s not is the drag from trade, though it shouldn’t be anywhere near as severe as it was during the first quarter,” Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh, said before the report. “The stronger dollar still means that any kind of growth we get in the U.S. economy is going to be made in America.”
