US: March Trade Deficit narrowed sharply - Nomura

Analysts at Nomura explain that while core capital goods shipments and retail inventories for the US economy were weaker than their expectations, net exports of goods were unexpectedly strong in March.

Key Quotes

“Shipments of core capital goods slowed in March

• New orders for core durable goods (excluding transportation equipment) were flat in March, below expectations (Nomura and Consensus: 0.5% m-o-m), with downward revisions to orders in February and January.
• That said, new orders of core capital goods were down 0.1% m-o-m in March with downward revisions to February, implying that a pickup in equipment investment could be more gradual in coming months. Moreover, a material escalation in trade tensions could dampen business sentiment and jeopardize business investment plans. Several regional business surveys indicated notable deterioration in manufacturers’ near-term outlook in April, partly reflecting trade concerns.”

“But trade deficit narrowed sharply

• The advance estimate of March trade deficit came in at $68.0bn, narrowing sharply from $75.9bn in February (Consensus: $75.0bn). Reflecting synchronized global economic growth, good exports increased a solid 2.5% m-o-m in March.
• However, goods imports dropped sharply by 2.1% m-o-m. The recent tariffs on steel and aluminum might have affected goods imports.
• We think that a large part of the decline in imports was transitory and expect a rebound in coming months as domestic demand remains strong.”

“Q1 real GDP growth forecast

We now expect the advance estimate of Q1 real GDP growth to come in at 2.0% q-o-q saar, up four-tenths of a percent from our previous forecast. This upward revision reflects the net impact of the incoming data to our Q1 GDP tracking model. While core capital goods shipments and retail inventories were weaker than we expected, goods imports dropped sharply and goods exports rose firmly in March. The unexpected strength in real net exports of goods likely more than offset the softness in core capital goods shipments and retail inventories. Our updated GDP forecast appears more consistent with incoming strong labor market and business and consumer sentiment data.”