Trade Deficit Drops on Falling Imports

The trade deficit fell 11 percent as imports fell more than exports. While a drop in imports adds to GDP, as imports are a subtraction from domestic economic output, it could signal companies may desire to keep inventories low if they expect weaker sales ahead. The 0.4 percent dip in retail sales reported for March corroborates that point, and may cause retailers and wholesalers to cut back orders from abroad. More specifically, the U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that total March exports of $184.3 billion and imports of $223.1 billion resulted in a goods and services deficit of $38.8 billion, down from $43.6 billion in February, revised. March exports were $1.7 billion less than February exports of $186.0 billion. March imports were $6.5 billion less than February imports of $229.6 billion. In March, the goods deficit decreased $4.6 billion from February to $56.1 billion, and the services surplus increased $0.2 billion from February to $17.3 billion. Exports of goods decreased $1.8 billion to $130.3 billion, and imports of goods decreased $6.4 billion to $186.5 billion. Exports of services increased $0.1 billion to $53.9 billion, and imports of services decreased $0.1 billion to $36.6 billion. Exports of services include things such as music, television and movie royalties and financial services, among others. The goods and services deficit decreased $12.9 billion from March 2012 to March 2013. The drop in imports was in more economically-sensitive areas. The February to March decrease in imports of goods reflected decreases in consumer goods ($3.4 billion); capital goods ($1.5 billion); industrial supplies and materials ($1.4 billion); and automotive vehicles, parts, and engines ($0.8 billion). An increase occurred in other goods ($0.9 billion). Foods, feeds, and beverages were virtually unchanged. Perhaps companies imported fewer goods if they are concerned about weaker domestic demand, or perhaps they viewed their inventory levels as higher than desired for other reasons. In real terms, the drop in total imports was 2.8 percent Meanwhile, our exports of goods held up well outside of food. The February to March decrease in exports of goods reflected decreases in foods, feeds, and beverages ($1.1 billion); automotive vehicles, parts, and engines ($0.3 billion); industrial supplies and materials ($0.3 billion); capital goods ($0.3 billion); and consumer goods ($0.3 billion). An increase occurred in other goods ($0.2 billion). Not including food, which is a significant export category, exports of goods fell 0.5 percent in real terms. That indicates many of our trading partners, despite weakness in Europe, have not cut their imports from the U.S. by a significant degree in March. Still, our exports to Europe have fallen from year ago levels. Since exports by country and region are reported without a seasonal adjustment, we need to look at year-over-year comparisons for these data. Exports of goods to Europe fell to $78.8 billion for the first three months of the year from $86.0 billion in the same period in 2012. For just countries using the euro, exports fell to $46.6 billion from $49.2 billion for the first quarter 2013 vs. the same period in 2012. Exports of goods to China increased to $28.1 billion from $27.0 billion for the first quarter 2013 vs. the first quarter 2012. For all the excitement about China, our exports to that nation account for roughly just 0.7 percent of our economy. (Of course, our exports to China's trading partners should be considered as well, as we may benefit indirectly from economic activity in China.) Our politically-sensitive trade deficit with China increased to $69.1 billion from $67.1 billion for the first three months of the year compared to the same period in 2012, as our imports increased. What is interesting in these data is our drop in petroleum imports over time. In January 2011, we imported $19.3 billion in petroleum products, in real terms. By March 2013, our imports of petroleum dropped to $14.9 billion. These data are after adjusting for inflation, including the price of oil. The trend has been consistently down over the past two years, and may reflect growing energy independence as we turn to fracking and other methods of oil and natural gas drilling. Still, our petroleum trade deficit for March was $9.6 billion.