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The trade deficit narrowed in March as exports rose sharply. The U.S. trade deficit in goods and services fell to a seasonally adjusted $64.2 billion in March, from $70.6 billion in February. With March’s drop, the trade balance is at its narrowest gap since October. Trade flows have been particularly volatile in recent months. The overall trade deficit has narrowed since early 2022, but it remains over 50% wider than it was prior to the pandemic. As the U.S. economy shows signs of cooling, trade flows will likely soften as consumers pull back on spending.
Exports rebounded after a fall in February, thanks to an increase in outbound shipments of autos and petroleum products in March. Total exports rose 2.1%, primarily because of a 3.1% increase in goods exports. All categories of goods exports rose except for food and beverages. The 6.3% gain in industrial supplies exports largely reflects higher shipments of oil, with crude and fuel oil together accounting for most of the gain in March. It's unlikely that the strength in petroleum products exports will continue next month. Services exports were essentially flat, led by travel and transport.
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Imports were weaker in March. They fell 0.3%, reflecting lower inbound shipments of semiconductors, chemicals, and cell phones. Food and beverages and consumer goods were the only categories to register a rise in inbound shipments. Imports of services increased in March as Americans continued to travel overseas in the wake of more international borders reopening after the pandemic. Imports are noticeably lower than where they stood a year ago, but they’re still running at an elevated level.
Trade likely won’t contribute much to GDP in the coming quarters. A smaller trade deficit was one of the contributors to the economy’s 1.1% annualized growth rate in the first quarter. Net exports have now boosted growth for four consecutive quarters. The latest trade data indicate that trade will pose a drag on GDP growth for the remainder of the year, as weakening external demand and a strong dollar weigh on exports while flagging domestic demand pushes imports lower.
Source: Department of Commerce, Trade Data (opens in new tab)
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