Record exports help reduce US trade deficit

Ships and containers are photographed at the Port of Long Beach in Long Beach, California, USA, January 30, 2019. REUTERS/Mike Blake

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  • Trade deficit falls 19.1% to $87.1 billion in April
  • Exports increase 3.5%; imports fall 3.4%
  • Trade on track to boost second-quarter GDP growth

WASHINGTON, June 7 (Reuters) – The U.S. trade deficit narrowed by nearly 9.5 years in April as exports jumped to a record high, putting trade on course to contribute to economic growth this quarter.

The sharp decline reported by the Commerce Department on Tuesday reversed the March high and suggested that trading could be returning to a more normal pattern. The deficit widened, hitting successive all-time highs as the US economy led the recovery from the global slowdown of the COVID-19 pandemic.

The persistent pandemic and shifts in supply chains have caused extreme volatility in business data.

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“The deficit has increased on trend over the past couple of years because the US economy has generally grown faster than most of its major trading partners during that period,” said Jay Bryson, chief economist at Wells Fargo in Charlotte, North Carolina. “We expect trade to make a modest positive contribution to overall GDP growth in the second quarter.”

The trade deficit fell 19.1%, the biggest drop since December 2012, to $87.1 billion. March data was revised to show the trade deficit deteriorating to a record $107.7 billion, instead of the previously reported $109.8 billion.

Economists polled by Reuters predicted the trade deficit would shrink to $89.5 billion. The government also reviewed trade data for several years. These revisions lowered previously released estimates over the course of the first quarter, which could see gross domestic product for that period revised upwards.

A record trade deficit cut GDP by 3.23 percentage points in the first quarter, resulting in output contracting at an annualized rate of 1.5%, after growing at a robust 6.9% in the October-December quarter.

After the revisions, economists expect first-quarter GDP to be revised to show a contraction of around 1.3% when the government publishes its third estimate later this month. Trade subtracted from GDP for seven consecutive quarters.

Growth estimates for the second quarter come in at 4.8%. April’s trade deficit is about $7.5 billion below the first-quarter average.

“If that level were maintained through June, it would likely translate into a positive contribution to second-quarter GDP of about two percentage points,” said Lou Crandall, chief economist at Wrightson ICAP in Jersey City.

Wall Street stocks plummeted. The dollar fell against a basket of currencies. US Treasury prices rose.

Trade balance

DECLINE IN IMPORTS

In April, exports of goods and services increased 3.5% to an all-time high of US$252.6 billion. The broad increase was led by shipments of industrial inputs and materials, which hit a record amid increases in exports of natural gas, precious metals and oil products.

Oil exports rose to a record $27.2 billion from $26.3 billion in March. Food exports were also the highest on record, with the country selling an additional $2.1 billion worth of soybeans. Capital goods exports rose $1.2 billion to $47.5 billion, the highest since March 2019, with civil aircraft shipments up $1.3 billion.

Services exports rose $2.4 billion to $76.5 billion, driven by gains in travel and transportation.

Imports of goods and services fell 3.4% to US$339.7 billion. Imports had been increasing rapidly as companies replenished inventories to meet strong domestic demand.

But with the Federal Reserve raising interest rates to fight inflation, demand is slowing. Inventories of some goods are also close to normal, reducing the need for imports.

The drop in imports could also be a result of shutdowns in China as it battled new COVID-19 infections. China’s imports fell by $10.1 billion, helping to narrow the goods trade deficit with Beijing to $34.9 billion from $43.4 billion in March.

Consumer goods imports fell by $6.3 billion amid declines in textile apparel and household goods, as well as toys, games and sporting goods. Pharmaceutical preparations also fell. Imports of industrial supplies and materials fell by $5.3 billion, with finished steel sections falling by $5.6 billion.

Imports of capital goods declined by US$2.6 billion, while computers dropped by US$1.9 billion. But imports of motor vehicles, parts and engines rose by $1.4 billion to an all-time high of $33.7 billion. Food imports were also the highest on record.

At $25.2 billion, oil imports were the highest since October 2014. With the US now a net oil exporter, the impact on the trade deficit was neutral.

Imported crude oil prices averaged $94.99 a barrel in April, the highest since August 2014.

Oil prices soared after Russia’s war with Ukraine, which also pushed up prices for other commodities, including wheat and sunflowers.

“We wouldn’t be surprised to see some further moderation in imports as demand for goods declines,” said Veronica Clark, an economist at Citigroup in New York.

Service imports rose $0.9 billion to a record $55.9 billion, driven by travel and other business services.

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Reporting by Lucia Mutikani; Editing by Andrew Heavens, Chizu Nomiyama and Andrea Ricci

Our Standards: The Thomson Reuters Trust Principles.

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