Trade Data Point to First-Quarter Economic Contraction
WASHINGTON -- A surge in imports lifted the U.S. trade deficit in March to its highest level in nearly 6½ years, suggesting the economy contracted in the first quarter.
Growth, however, is regaining momentum as other data Tuesday showed activity in the services sector, which accounts for more than two-thirds of the economy, accelerated to a five-month high in April.
"It looks like we are going to have negative GDP for the first quarter, just based on trade, but we expect a robust rebound in the second quarter. A lot of the headwinds we saw in the first quarter have unwound," said Jacob Oubina, senior U.S. economist at RBC Capital Markets in New York.
The Commerce Department said the trade deficit jumped 43.1 percent to $51.4 billion in March, the largest since October 2008. The percent rise was the biggest since December 1996. The surge came as imports snapped back after being held down by a now-settled labor dispute at key West Coast ports.
Economists had forecast the trade deficit rising to only $41.2 billion. When adjusted for inflation, the gap widened to $67.2 billion in March, the largest in eight years, from $51.2 billion in February.
U.S. stocks and Treasury debt prices were trading lower. The dollar fell against a basket of currencies.
March's trade gap was far larger than the $45.2 billion deficit the government assumed in its snapshot of first-quarter gross domestic product last week.
In that report, the government estimated trade sliced off 1.25 percentage points from GDP, helping to pull down growth to a 0.2 percent annual pace. The economy expanded at a 2.2 percent rate in the fourth quarter.
Economists said growth could be lowered by at least six-tenths of a percentage point when the government publishes its second GDP estimate later this month.
No Serious Downturn
The West Coast ports labor dispute, a strong dollar, deep spending cuts by energy companies reeling from lower oil prices, and bad weather hampered growth in the first quarter. But some of that drag on growth is fading.
In a separate report, the Institute for Supply Management said its services sector index rose to 57.8 last month, the highest since November, from 56.5 in March. A reading above 50 indicates expansion in the vast services sector.
%VIRTUAL-pullquote-There is little reason to believe that the potential contraction in first-quarter GDP is the start of a serious downturn in the U.S. economy.%"There is little reason to believe that the potential contraction in first-quarter GDP is the start of a serious downturn in the U.S. economy," said Paul Ashworth, chief U.S. economist at Capital Economics in Toronto.
Companies reported an increase in new orders and order backlogs. Export orders, however, contracted sharply, reflecting the dollar's impact. The greenback has gained about 12 percent against the currencies of the United States' main trading partners since last June, making American goods and services less competitive on the international market.
The trade report showed imports jumping 7.7 percent in March, the largest increase on record.
Some of the imported goods likely ended up as inventories, which in the first quarter recorded their biggest increase since the third quarter of 2010. That inventory overhang could spell bad news for second-quarter GDP.
Imports of capital and consumer goods were the highest on record in March, while imports of industrial supplies and materials slumped to an all-time low.
Imports of petroleum products hit a record low, highlighting lower crude oil prices and increased energy production in the United States, which has reduced its dependence on foreign oil.
The average import price for crude oil was $46.47 a barrel in March, the lowest in six years.
Exports increased 0.9 percent in March. Petroleum exports were the lowest since February 2011. Exports to the European Union rose 8.6 percent, with those to Germany reaching their highest level since October 2008.
The United States sold the fewest amount of goods and services to Brazil since April 2010. Exports to Canada and Mexico, the main U.S. trading partners, were up in March.
Exports to China increased 13.6 percent, while imports from that country jumped 31.6 percent. That left the politically sensitive U.S.-China trade deficit at $31.2 billion, up 38.6 percent from February.
The U.S. trade deficit with Japan was the largest in two years.