Rebound in Imports Points to Sustained U.S. Demand

The trade deficit in the U.S. widened in April from a more than three-year low, reflecting a rebound in imports that points to sustained gains in consumer and business spending.

The gap grew by 8.5 percent to $40.3 billion from a $37.1 billion shortfall in March that was smaller than previously estimated, Commerce Department figures showed today in Washington. The median forecast in a Bloomberg survey of 68 economists called for the deficit to grow to $41.1 billion. Imports climbed by 2.4 percent, twice the increase in exports.

The pickup in purchases of foreign-made mobile phones, automobiles and computers indicates growing demand by American households and businesses at the start of the quarter that will help the world’s largest weather government cutbacks. Record U.S. exports of autos and parts and consumer goods also show global growth is stabilizing.

“U.S. consumers are doing their part for the global economy,” said Millan Mulraine, an economist at TD Securities USA LLC in New York, who projected the deficit would grow to $40 billion. “Things are relatively soft in the U.S. this quarter, but it certainly isn’t the level of softness that had been expected a few months ago.”

Stocks fell as investors weighed prospects for economic growth and central bank stimulus. The Standard & Poor’s 500 Index declined 0.6 percent to 1,631.38 at the close in New York.

U.K. Economy

Elsewhere today, U.K. construction unexpectedly grew in May and retail sales increased, adding to indications of a tentative economic recovery.

“Recent reports suggest Europe is past the worst for now,” Mulraine said. “It indicates the beginning of stabilization in global demand.”

Bloomberg survey estimates for the trade gap ranged from deficits of $36.7 billion to $43.5 billion. The March shortfall, which was revised from an initially reported $38.8 billion, was the smallest since October 2009. The Commerce Department today issued its annual revisions, affecting data back to 1999.

Imports grew to $227.7 billion from $222.3 billion in March. Purchases of foreign-made autos and parts climbed by $1.28 billion, while demand for mobile phones rose by $816 million. In addition, American purchases of computers shot up by $429 million and rose by $330 million for telecommunications gear.

Oil Imports

The import total would have been even larger excluding a pullback in oil demand. U.S. petroleum purchases of $29.6 billion were the lowest since November 2010.

“One continuing theme is the move toward greater reliance on domestic energy production,” John Ryding, chief economist and co-founder of RDQ Economics in New York, said in a research note. Less dependence on foreign oil has restrained the trade gap and contributed about 0.25 percentage point to growth over the past year, he said.

Excluding petroleum, the trade shortfall grew to $20.6 billion in April from $16.7 billion.

Exports increased 1.2 percent to $187.4 billion, the second-highest level on record, boosted by a $586 million gain in sales of autos and parts and a $1.96 billion advance in consumer goods, including jewelry and diamonds.

Not Sustainable

Because so much of the gain in exports was concentrated in jewelry and gems, a category not usually associated with U.S production, the increase was of “low quality” and will probably be reversed in coming months, Ted Wieseman, an economist at Morgan Stanley in New York, said in a research note.

The trade deficit adjusted for inflation, which is the figure used to calculate gross domestic product, widened to $47.6 billion from $44.6 billion in March. The April reading was little changed from the $47.8 billion first-quarter average, indicating trade so far is not having much influence on growth this quarter.

The trade gap with China, the world’s second-biggest economy, jumped 34.8 percent to $24.1 billion from $17.9 billion, today’s report showed. The figures are not adjusted for seasonal variations and can become volatile around holidays.

Honeywell International Inc., a Morris Township, New Jersey-based maker of cockpit controls and thermostats, is among companies seeing a slowdown in China this quarter.

China Growth

“In the short term, there’s no doubt demand has decreased” in China, Chief Executive Officer David Cote said during a conference on May 29. “There are going to be some ups and downs but I do believe they’re working their way through that.”

The U.S. economy expanded at a 2.4 percent annualized rate in the first three months of 2013. The trade gap widened to $391.5 billion, subtracting 0.21 percentage point from growth as imports climbed more than exports.

Economic growth may cool this quarter to a 1.6 percent annualized rate, as the $85 billion in automatic across-the-board federal spending cuts, or sequestration, that began in March start to ripple through the economy, according to the median forecast of economists in a separate Bloomberg survey conducted in May. Growth is projected to accelerate in the last six months of the year.

A stronger U.S. currency will make American exports less attractive to overseas buyers. The Dollar Index, used by IntercontinentalExchange Inc. to track the greenback against currencies of six U.S. trading partners, has climbed 4.5 percent from Feb. 1, this year’s low, through yesterday.

Global Sales

Even so, U.S. companies are benefiting from overseas demand in some parts of the world. Caterpillar Inc., the largest maker of construction and mining equipment, on May 20 said global retail sales fell at a slower pace in the three months through April from a year ago, as Latin America improved. Wet, cold weather hurt North American machine retail sales, the Peoria, Illinois-based company said.

The Organization for Economic Cooperation and Development in May forecast that global economic growth will accelerate in 2014, with the U.S. and Japan continuing to outpace the euro area. The euro-area economy will shrink in 2013 before expanding next year, it said. China, which isn’t a member of the OECD, will expand 8.4 percent in 2014 after growing 7.8 percent this year, according to the report.

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