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U.S. Trade Deficit Steadies In March

The U.S. trade deficit stayed almost unchanged from the upwardly revised $43.8 billion deficit recorded in February. A slightly larger goods deficit was matched by a similar increase in the services surplus.

Trade Deficit Lower Than Expected in March

The U.S. trade deficit was $43.7 billion in March, lower than what markets were expecting and just $0.1 billion lower than the slightly upwardly revised $43.8 billion deficit recorded in February. Exports of goods and services declined 0.9 percent on the month, to $191.0 billion, or $1.7 billion lower than February, while imports of goods and services declined 0.7 percent, also by $1.7 billion, to $234.7 billion.

On the export goods side, there was a strong decline in industrial supplies exports, down $1.78 billion compared to an increase of $0.29 billion in February, while automotive exports declined $0.82 billion after inching higher $0.19 billion in February. Meanwhile, consumer goods exports were down $0.65 billion in March, almost erasing the $0.69 billion increase recorded in February. Exports of food and beverages increased slightly, up $0.18 billion after falling $0.81 billion in February.

From the goods import side, imports dropped $1.81 billion with imports excluding petroleum dropping $1.11 billion after a decline of $5.07 billion in February. Meanwhile, food and beverage imports declined $0.26 billion while industrial supplies dropped $0.92 billion after increasing $0.72 billion the previous month. Capital goods imports were down $1.06 billion, the first decline since November 2016. However, automotive imports, which had declined $2.61 billion in February, increased $1.13 billion in March. On the other hand, consumer goods imports were down $0.52 billion after declining $3.11 billion in February. The March trade deficit in goods and services was the consequence of an increase of $0.4 billion in the deficit for goods and an increase of $0.4 billion in the surplus of services.

On a year-to-date comparison, the goods and services deficit increased 7.5 percent, or $9.4 billion, compared to 2016. Meanwhile, both exports of goods and services and imports of goods and services increased by 7.1 percent during the first quarter of the year.

Trade Contributes Positively to Q1 GDP Growth

Today’s release of the March trade deficit in goods and services has confirmed our estimate that the trade sector contributed slightly to GDP growth in Q1. That is, if there is a downward revision to first quarter GDP growth, the odds are that other sectors would cause that revision rather than the external sector. However, we believe that the positive contribution from the external sector to economic growth is temporary. Despite our forecast that has the trade sector subtracting from economic growth to the tune of about 0.3 percent to 0.4 percent per quarter, we still expect the U.S. economy to gain strength during the rest of the year.

Wells Fargo Securities
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