A Little Lift for U.S. Trade
There was a little less red ink for the U.S. in February. According to a government report released Apr. 12, the nation's trade deficit for the month narrowed to $65.7 billion (vs. economists' median forecast of $67.5 billion), from January's record gap of $68.6 billion.
Exports fell 1.2% in February, following gains of 2.2% in January and 2.5% in December. Imports dropped 2.3%, after a 3.6% surge in January and a 1.7% gain in December. As such, the declines in both components took the edge off the aggressive upward trajectories in the trade components through January.
Weakness was broad-based across both the import and export components. The negative jolt to all these trade components likely reflected both falling natural-gas prices and a lull in activity from the Chinese New Year.
Despite the growth shortfalls in February for exports and imports, we at Action Economics still expect exports to post a solid real (i.e. inflation-adjusted) 16% growth rate in the first quarter, while imports post real growth of 13%. Both trade components are still registering an extended post-hurricane bounce.
The February trade report will prompt a boost to our already lofty first-quarter gross domestic product estimate to 5.3%, with a modest $10 billion net export subtraction, and a solid 5.7% growth clip for real final sales. The U.S. current account deficit should rise to $228 billion, from the record $225 billion gap of the fourth quarter.
One noteworthy feature of the report: The four biggest non-seasonally adjusted (NSA) U.S. import declines in February were drops of 19% to 29% from Australia, Hong Kong, Taiwan, and China. On the same NSA basis, imports overall fell only 6%, and U.S. NSA imports excluding these four countries fell only 3.4%, which is reflective of the fewer workdays in February.
Clearly, the Chinese New Year celebration had a significant disruptive effect on trade on three of these countries. The similar swing in the Australian figure likely reflects noise in a component that accounts for only $466 million in U.S. imports.
The increasing shift in the composition of U.S. trade toward China may continue to drive a seasonal tendency for U.S. trade to improve with the Chinese New Year, even in the seasonally adjusted aggregate trade data. It's commodity categories that are seasonally adjusted and aggregated, not the geographic data, and these commodity categories may reveal a persistent seasonal shift each year with the growing role played by the Chinese economies.
Even though the February U.S. trade improvement may reflect seasonality, the declines in the February trade components reversed a chunk of the upside surprises in the prior two months, with the import strength before February at least partly reflecting attempts by shippers to "pre-ship" before anticipated Chinese New Year port disruptions.
As such, the trade outlook is actually a bit better than we thought, though surging oil prices should continue to produce a deteriorating trend in the trade gap through at least mid-year.