Ugly gap in trade may turn into swan
Despite Census report, exports likely to take off
A massive trade deficit that hammered the U.S. economy in the first quarter is likely to shrink this year as the effects of a strong dollar moderate and global growth picks up.
That should aid a national economy that’s also poised to gain momentum as consumers spend more of their savings from cheap gasoline.
“What emerges is an economy and export sector that are in fact gathering more steam,” says Bernard Baumohl, chief global economist of the Economic Outlook group.
Hard to tell by looking at Tuesday’s ugly report from the Census Bureau. The trade deficit in March jumped $15.5 billion, or 43%, to $51.4 billion, highest since October 2008. Economists expected a smaller increase to $41.7 billion.
For the first quarter, the manufacturing deficit alone surged 30% after growing by 14% in the fourth quarter, according to an analysis by Ernie Preeg, a senior adviser for MAPI, the manufacturing industry’s research arm.
The total trade gap subtracted 1.9 percentage points from U.S. growth in the quarter, says Barclays Capital economist Jesse Hurwitz. That, he predicts, will turn the government’s meager 0.2% first-quarter growth estimate into a 0.3% contraction.
A strong dollar is holding down exports by making U.S. goods and services more expensive for overseas buyers. At the same time, it’s making imports a bargain for U.S. consumers.
In March, imports rose 7.7% to $239.2 billion, on increased deliveries of consumer and capital goods, and motor vehicles and parts. Exports edged up just 0.9% to $187.8 billion.
Some economists see bright spots. A big reason imports soared is that they were inflated by the clearing of shipment backlogs at West Coast ports after a labor dispute was settled in February, Hurwitz says. He expects those effects to fade.
Exports, meanwhile, rose in March for the first time in three months, Baumohl notes. A measure of manufacturers’ export orders — a gauge of future shipments — increased sharply in April after falling for several months.
And inflation-adjusted shipments of goods rose 1.5% in the first quarter compared to the year-ago period despite a 17% surge in the dollar against a basket of currencies since last July.
Baumohl and Hurwitz say the brunt of the greenback’s advance is over. The dollar has drifted down 4% since early March, in part because a pickup in economic activity in the eurozone has increased investment in the region, bolstering the euro vs. the dollar. Consumer prices ticked up in April after several months of deflation, or falling prices.
Hurwitz projects the monthly U.S. trade deficit will shrink to about $45 billion by the end of the year.