Upside Risk to Q1 GDP With Narrowing in U.S. Trade Deficit

Due to a jump in aircraft exports and a subdued rise in imports, the trade deficit narrowed to $49.4 billion in February from $51.1 billion in January. Trade is likely to provide a boost to Q1 GDP growth.

Narrowing in the Trade Deficit

• The trade deficit narrowed to $49.4 billion in February, as a jump in exports outweighed the subdued increase in imports.

• Export growth was strong (up 1.1%), with a considerable bounceback in civilian aircraft after a depressed January. But, this export category is likely to weaken in coming months. As we have previously written, decreased production and a halt in Boeings' 737 MAX deliveries should weigh on Q2 export growth.

Some Upside Risk to Q1 GDP Growth

• Imports grew a more modest amount in February (up 0.2%), while on an inflation-adjusted basis goods imports declined. This is due in part to the prolonged decline in real petroleum imports, which are down almost $5 billion from only seven months ago.

• Our current forecast looks for Q1 GDP to grow at an annualized pace of 1.8%. This report suggests upside risk to that estimate stemming from trade.