Widening trade gap offers mixed signals on economy
Reuters Business News | June 04, 2013

By Lucia Mutikani

WASHINGTON (Reuters) - Trade deficit widened in April as a rise in imports offset a rebound in exports, suggesting trade could drag on growth in the second quarter even as demand holds up.

The Commerce Department said on Tuesday the trade gap increased to $40.3 billion from $37.1 billion in March. That was less than economists' expectations for a rise to $41.0 billion.

When adjusted for inflation, the shortfall on the trade balance increased to $47.6 billion from $44.6 billion in March.

see also: USA Or KGB? Bombshell Memo Details FISA Abuses So Serious It Could Bring Changes To The FBI/DOJ

While the so-called real trade deficit was not as large as some economists had anticipated, it still suggested that trade would not be of much help to gross domestic product this quarter.

"We ended the (first) quarter on a fairly good footing, but if you think the U.S. economy is going to outperform the rest of the world, then our import demand will grow at a faster pace than export activity," said Millan Mulraine, a senior economist at TD Securities in New York.

The more heavily U.S. business and consumers turn to foreign products, the bigger the bite out of domestic production.

The data prompted some economists to trim their second-quarter GDP estimates. Macroeconomic Advisers pared its estimate by two-tenths of a percentage point to a 1.2 percent annual rate, while Morgan Stanley economists cut theirs to 1.4 percent from 1.6 percent.

RESILIENT DOMESTIC DEMAND

The three-month moving average of the trade deficit, which irons out month-to-month volatility, slipped to $40.42 billion in the three months to April from $41.22 billion in the prior period. That was the smallest gap since December 2010.

U.S. financial markets were little moved by the data, with investors awaiting a report on May employment on Friday for fresh clues on when the Federal Reserve might start scaling back its expansive monetary stimulus.

Despite a widening in the trade deficit in April, details of the report offered some good news for an economy that hit a speed bump as higher taxes and government spending took hold.

In April, imports of goods and services increased 2.4 percent to $227.7 billion. The snap-back in imports, driven mostly by capital goods and automobiles, pointed to resilience in domestic demand.

While imports rose, the petroleum bill was the lowest since November 2010. This is a positive development for the energy-dependent economy.

"The domestic energy renaissance continues to reduce America's energy dependence," said Guy Berger, an economist at RBS in Stamford, Connecticut. Berger noted that the three-month moving average of the inflation-adjusted petroleum trade deficit in April was the smallest on record.

Record increases in exports of consumer goods and automobiles and parts pushed overall exports up by 1.2 percent to $187.4 billion in April, the second highest on record.

Strong export growth helped lift the economy out of the 2007-09 recession, but momentum has waned in recent months against the backdrop of slowing global demand, especially in China and recession-hit Europe.

"Softer global growth, from Europe to China to Latin America, has restricted demand for U.S. manufacturers and resulted in a broadly sideways trend for exports," said Andrew Grantham, an economist at CIBC World Markets in Toronto.

"With Europe remaining in recession and growth in other parts of the world still soft, we don't expect April's advance to turn into a sustained pick-up at this stage."

Economists also expect export growth to slow as the lagged effects of dollar strength earlier in the year kick in. A stronger dollar makes U.S. goods more expensive to foreign buyers.

In April, U.S. exports to the 27-nation European Union fell 7.9 percent. Exports to the EU in the first four months of 2013 were down 7.4 percent compared to the same period in 2012.

Exports to the United Kingdom were the lowest since May 2009, while those to China declined 4.7 percent.

China has been one of the fastest growing markets for U.S. goods, and exports to that country were up 4.8 percent for the first four months of 2013.

Imports from China surged 21.2 percent, lifting the contentious U.S. trade deficit with China to $24.1 billion from $17.9 billion in March.

(Editing by Andrea Ricci and Tim Ahmann)

Outbrain