US Import Growth Slows Down, Q1 GDP Growth Expectation Rises
The US trade deficit narrowed sharply in February with a $6.3-billion decline in imports and a mere $240-million gain in exports, resulting in increasing the estimate for first-quarter GDP growth to 2.5 percent, according to analysts.
Part of the sharp narrowing in the trade deficit, to $46.0 billion in February from $52.5 billion in January, was due to a fall in the value of oil imports triggered by a drop in the number of barrels being imported. But the non-petroleum deficit also narrowed to $18.2 billion from $22.9 billion.
The real goods deficit shrank as well to $44.1 billion from $49.1 billion. This was due to a 1.0 percent fall in real exports and a 3.9 percent decline in real imports.
In the first quarter as a whole, imports may have risen at an annualized rate of close to 5 percent. That would be roughly half the increase that previously looked likely, suggesting that net trade was a smaller drag on GDP growth, says Capital Economics.
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It is reported that producer prices were unchanged in March, suggesting that pipeline price pressures remain fairly subdued.
On the surface, a sharp decline in imports raises concerns about domestic consumer and business spending. But other indicators in February and March suggest that domestic demand is strengthening. Instead, the decline in imports was almost certainly supply-related.
The Chinese lunar New Year, which spilled into early February this year, idled Chinese factories that produce goods for US markets, says IHS Global Insight. As the Chinese holiday does not typically fall in February, the seasonal factor does not adjust for it.
So if the Chinese New Year is the reason and demand for imported goods remains robust, then the import bill will likely rebound in March.
Exports were down for food (4.7 percent), industrial supplies (0.1 percent) and automotive (6.4 percent) goods. Exports of consumer goods increased 2.1 percent while exports of capital goods were flat. The sharp drop in automotive exports may partly reflect the eurozone recession and slowdown in emerging market demand. But it probably also reflects correction after two strong months in January and February.
Meanwhile, strengthening domestic demand should continue to lift imports. Exports of autos should also rebound in March, lifting the total, but the upside for exports could be limited by waning external growth.
As such, the trade deficit could be widening going forward as US growth diverges from several major trading partners.
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