Smaller Trade Gap a Mixed Blessing as Demand Weakens Everywhere

  • Goods trade deficit slumps to smallest in more than a year
  • Reason for narrowing not good as imports drop to five-year low

Thanks to a narrower merchandise trade gap, it now looks like U.S. economic growth was a little less horrible in the first quarter than economists had previously penciled in.

The deficit between the value of exports and imports shrank to $56.9 billion in March, the smallest since February 2015 and less than the lowest estimate of 41 economists surveyed by Bloomberg, according to advance data issued by the Commerce Department Wednesday. It represented a 10.3 percent improvement from a final reading of $63.4 billion in February.

While the figures prompted some economists to boost tracking estimates for first-quarter gross domestic product from near zero, the plunge in imports that precipitated the narrowing signals spending by U.S. consumers and companies remains subdued. Exports also fell last month, indicating weak global markets and a relatively strong dollar are still hindering American factories’ overseas sales.  

“This helps a little bit in terms of the adding-up of first-quarter GDP,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. “But again, the ongoing contraction in imports and exports doesn’t reflect well on the overall state of either domestic or external demand.”

A smaller trade gap helps boost economic growth because it means that the burden of the slowdown in demand is not being solely imposed on U.S. companies but is also shared with foreign manufacturers. 

The value of merchandise bought by Americans from abroad slumped 4.4 percent to $173.6 billion, the lowest since December 2010. The decrease was broad-based, with declines in spending on foreign-made business equipment, autos and parts and consumer goods.

American exports declined 1.2 percent to $116.7 billion, the second-weakest reading since February 2011. January’s $116.2 billion marked a five-year low.

Economists at Capital Economics lifted their projection for first-quarter U.S. GDP -- which will be issued Thursday -- to 1.4 percent from 0.8 percent before the trade report. Other tweaks were less dramatic. Feroli and his colleagues at JPMorgan raised their tracking estimate to 0.4 percent from 0.3 percent, while Barclays Plc increased it to 0.7 percent from 0.5 percent.

Swings in imports could have been caused by the vagaries of shipments around China’s Lunar New Year, which would have less dire implications for U.S. demand, according to some economists. The holiday, which slows the nation’s manufacturing production, occurred in early February and may have prompted its factories to ship as much as possible in advance, triggering the collapse last month.

Not Indicative

“People shouldn’t take this as a broader trend,” said Brett Ryan, a U.S. economist at Deutsche Bank Securities Inc. in New York, whose forecast for the trade balance was among the lowest in the Bloomberg survey. “This will even out, probably next month, so it’s more of a one-off issue and less an indication of a serious downtrend in consumption.”

Advance reports on monthly international goods-only trade allow Commerce’s Bureau of Economic Analysis to incorporate three months of official trade data into its first estimates of quarterly GDP. Previously, the BEA had two complete months of trade figures for goods and services to calculate its first estimate of GDP, prompting it to project the trade balance for the final month of a quarter.

The world’s largest economy grew at a 0.6 percent annualized rate from January through March after expanding at a 1.4 percent pace in the last three months of 2015, according to the median forecast of economists surveyed by Bloomberg ahead of Thursday’s report.

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