Broad-Based Weakness in Both Exports and ImportsThe U.S. trade deficit narrowed sharply in February due, at least in part, to disruptions at the nation’s West Coast ports. The trade deficit likely will widen again in coming months.
The red ink in the U.S. trade account narrowed sharply from a revised deficit of $42.7 billion in January to $35.4 billion in February (top chart), which was much smaller than the consensus forecast had anticipated. Although February marked the smallest trade deficit since the U.S. economy was pulling out of recession in late 2009, we suspect there is a special factor that is distorting the data, namely, the lingering effects of the West Coast port disruptions.
On the credit side of the ledger, total exports of goods and services dropped by $3 billion during the month. Exports of consumer goods rose $1.3 billion, but the other broad categories of exports all posted declines, with autos down $1.1 billion, industrial supplies and materials off $1.4 billion and capital goods $1.7 billion lower. Although growth in many of America’s major trading partners is slow, the $9 billion drop in total exports since December seems to overstate the weakness in the rest of the world. Rather, we suspect that the port disruptions on the West Coast helped to depress exports in the first two months of the year.
On the debit side of the ledger, declines were also broad based, with total imports of goods and services down more than $10 billion. The decline in oil prices contributed to the overall drop in imports in February, as the value of petroleum imports fell $3.1 billion to their lowest level in more than ten years (middle chart). That said, the $9.8 billion nosedive in nonpetroleum imports that has occurred since December is not consistent with an economy that is experiencing solid economic growth. Import declines on the order that we have seen the past two months would be experienced by an economy in recession.
However, all other indicators suggest that the U.S. economy continues to expand at a solid rate. Therefore, it seems that a special factor may be at work depressing imports, that is, the West Coast port disruptions.
In volume terms, imports of goods fell more ($6.6 billion) than exports of goods ($2.8 billion). Consequently, the real trade deficit, which feeds directly into real GDP, narrowed during the month (bottom chart). If the real trade deficit in March were to remain unchanged relative to February, then net exports would exert only a modest drag on overall real GDP growth in the first quarter. However, with the disruptions at the West Coast ports now behind us, export and import volumes should both bounce back sharply in March. Moreover, it seems likely that imports, which have fallen further than exports over the past few months, will bounce back more than exports in March. Therefore, the drag from net exports on overall GDP growth in Q1 likely will be more assertive than a simple straight-line assumption would suggest. Indeed, we look for net exports to exert some headwinds on overall U.S. GDP growth throughout the year.
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