Gaining Some Perspective on Trade Gap

The recent report by the Bureau of Economic Analysis maintains that the U.S. trade gap is largest in over 20 years. Indeed, according to the Commerce Department, the deficit widened by 43.1 percent to a seasonally adjusted $51.37 billion in March.

IHS Global Insight's U.S. economist, Patrick Newport, says it's too early to know if this is a sound of alarm, however.

“This report, like the prior two, is hard to interpret because disruptions at West Coast ports, which were resolved at the end of February, distorted the numbers,” he says. “It comes as a shocker to just about everyone except for the civil servants at the BEA who, once again, in their assumptions note that accompanied the Advanced GDP release, projected a number that was much closer to the mark than the consensus estimate.”

Newport noted that goods exports increased for the first time in five months, but the trend is still down. Exports are dropping because of the stronger dollar and lower oil prices, which have lowered the value of fuel oil and of petroleum products exports.

“Going forward, exports growth is likely to be low due to the stronger dollar and lackluster growth abroad,” he says.

Imports are moving sideways as plunging oil imports are offsetting increases in imports of the remaining categories. Petroleum imports fell by $1.1 billion to $15.4 billion, the lowest level since September 2004.

Based on this report, the BEA is likely to revise first quarter growth down by 0.5 percentage points: net exports’ contribution to growth is likely to be revised down from minus 1.3 to minus 1.8 percentage points.

It now appears that the economy shrank in the first quarter ( IHS says its current growth estimate for the quarter is minus 0.5 percent).

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