Port Disruptions Continue to Distort Trade Data in March

The U.S. trade deficit blew out in March as West Coast ports fully opened again. Although trade data should start to settle down again, net exports likely will continue to exert modest headwinds on U.S. GDP growth.

Imports Surged as West Coast Ports Reopened

The U.S. deficit in trade in goods and services surged from $35.9 billion in February to $51.4 billion in March (top chart). Not only was the red ink in the trade accounts in March about $10 billion larger than the consensus forecast, but it was also the single largest monthly swing in the trade deficit on record. Is America’s international trade performance suddenly going down the tubes?

Not really. The massive increase in the trade deficit in March largely reflects the distortions in trade that occurred early this year due to the work disruptions at some of the nation’s West Coast ports. Imports of goods collapsed by $18 billion in January and February when container ships could not be offloaded and sat fully loaded in harbor. The end of the work stoppages caused goods imports to surge by more than $16 billion in March. Now that imports are nearly back to the levels that prevailed before the disruptions started, the monthly changes in imports going forward should settle down to their usual pattern.

Exports of goods were also distorted by the work stoppages, but not to the same extent as imports. Total goods exports fell by nearly $9 billion in January and February, but they rebounded by only $1.5 billion in March. As shown in the middle chart, the year-over-year growth rate of exports has slipped into negative territory. Although the West Coast port disruptions may have amplified the recent weakness in exports, there are some fundamental reasons for lackluster export growth at present. Specifically, slow growth in some of the country’s major trading partners and the appreciation of the dollar, which rose more than 15 percent on a tradeweighted basis between the end of June 2014 and mid-March 2015, are probably helping to depress export growth.

When the Bureau of Economic Analysis (BEA) made its first estimate of real GDP growth in the first quarter, it assumed that the goods deficit widened by more than $9 billion in March. In the event, the deficit actually shot up by about $15 billion. Consequently, the revisions to the trade data will be enough to reduce the real GDP growth rate in Q1 by 0.5 percentage point. With the preliminary estimate showing that real GDP edged up at an annualized rate of only 0.2 percent in Q1, revised GDP data could very well show a slightly negative growth rate in the first quarter.

Moreover, the monthly dynamics means that the real trade deficit entering the second quarter is very large. Therefore, net exports likely will make another negative contribution to real GDP growth in Q2. Indeed, we forecast that net exports likely will exert modest headwinds on overall GDP growth in the United States over the next two years due to continued slow economic growth in many foreign economies.