May 6 (Bloomberg) -- The biggest gain in U.S. exports in nine months helped narrow the trade deficit in March, pointing to a revival of global demand that will help the world’s largest economy strengthen.
The trade gap shrank by 3.6 percent to $40.4 billion from the prior month’s $41.9 billion, Commerce Department figures showed today in Washington. Sales to foreign customers climbed 2.1 percent to the second-highest level on record as demand grew for aircraft, autos and fuels.
Sales overseas improved from a five-month low reached in February, adding to evidence the U.S. economic expansion began to perk up heading into the second quarter after stalling at the start of the year. At the same time, American households and businesses are gaining confidence as employment improves, indicating imports will also rise.
“Exports rebounded after a few weaker months, and that’s good to see,” said Paul Edelstein, director of financial economics at IHS Global Insight Inc. in Lexington, Massachusetts, who projected the gap would narrow to $40.5 billion. “Imports were also up, and that’s a good sign because it suggests that business and consumer spending are back on track. In general, this is a pretty good report.”
Stocks dropped as Twitter Inc. led a selloff in Internet shares while American International Group Inc. dragged down financial companies. The Standard & Poor’s 500 Index slumped 0.9 percent to 1,867.72 at the close in New York.
News from overseas also pointed to improving demand. U.K. services grew at the fastest pace in four months in April as employment and new business picked up, figures from Markit Economics showed today in London.
The median forecast of 66 economists surveyed by Bloomberg projected the U.S. trade gap would narrow to $40 billion from a previously reported $42.3 billion in February. Estimates ranged from deficits of $43 billion to $38 billion.
Exports increased to $193.9 billion from $190 billion in February paced by record demand from Canada, South Korea and the countries in the CAFTA-DR trade zone, which includes Central America and the Dominican Republic. Shipments to Germany were the strongest since October 2008. Excluding petroleum, exports were at an all-time high in March.
The value of U.S. exports of civilian aircraft climbed to a record over the 12 months ended in March.
“We expect further strengthening in exports,” Yelena Shulyatyeva, a U.S. economist at BNP Paribas in New York, wrote in a research note. She said bad weather typically disrupts exports more than imports “as trucks find it difficult to get to ports while ships keep coming in.”
United Parcel Service Inc. is among companies that stand to benefit as the pace of trade improves. The company projects that U.S. economic growth will accelerate as 2014 progresses and the nation bounces back from weather-induced weakness, Chief Executive Officer Scott Davis said in an April 24 earnings call.
“In Europe, the economy is showing signs of recovery and faster growth,” Davis said. “Yet, if the situation in the Ukraine deteriorates, that pace may slow. Economic expansion in Asia has remained steady, with mid-single-digit growth. And in Latin America, expectations call for increased merchandise exports.”
Imports climbed 1.1 percent to $234.3 billion from $231.8 billion in the prior month as Americans bought more foreign-made mobile phones, semiconductors and civilian aircraft, which points to a pickup in business investment. Excluding petroleum, imports were also at a record.
After eliminating the influence of prices, which generates the numbers used to calculate gross domestic product, the trade deficit was little changed at $49.4 billion compared with $49.8 billion in February. The average in the first three months of the year exceeded the average during the fourth quarter, so trade subtracted from growth.
First-quarter gross domestic product, released last week, showed that the economy grew 0.1 percent. Taken together, exports and imports shaved 0.83 percentage point from growth, the initial Commerce Department estimate showed.
The March improvement in trade was less than the Commerce Department estimated, and combined with previous reports on construction and inventories, indicates the economy contracted at about a 0.5 percentage-point clip at an annualized rate in the first quarter, according to estimates by economists at Morgan Stanley in New York. They project a 3.7 percent rate of growth this quarter.
The trade gap with China, the world’s second-biggest economy, narrowed 2.2 percent to $20.4 billion from $20.9 billion, today’s report showed. China is set to overtake the U.S. as the biggest economy in terms of purchasing power as early as this year, figures from the International Comparison Program, which involves the World Bank and United Nations, showed April 29.
Even so, a cooling pace of Chinese growth and cuts to Europe’s forecast could temper the outlook for U.S. exports. China’s gross domestic product is expected to climb 7.3 percent this year, according to a Bloomberg survey, compared with 7.7 percent in 2012 and 2013. The European Commission predicted yesterday that gross domestic product will rise 1.7 percent in the euro area in 2015, compared with a previous forecast of 1.8 percent.
Meanwhile, demand for foreign-made products could hold up as U.S. consumers grow optimistic about the economy. Consumer confidence rose last week to its second-highest level in more than six years, propelled by growing optimism over household finances and the buying climate, the Bloomberg Consumer Comfort Index showed. That corroborated the signal from the Conference Board’s sentiment gauge in April, which was also the second-highest reading since 2008.
Geopolitical unrest could also disrupt U.S. sales overseas. Violence has intensified between Ukrainian forces and pro-Russian separatists in eastern and southern Ukraine, less than three weeks before a presidential vote in the country. President Barack Obama and German Chancellor Angela Merkel said the elections, scheduled for May 25, are the next trigger point determining whether the U.S. and its allies slap broader sanctions on Russia.
Because the U.S. does little trade with Russia and Eastern Europe, the sanctions and upheaval don’t pose major threats to trade, Mike Englund, chief economist at Action Economics LLC in Boulder, Colorado, said before the report.
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