America''s. trade deficit declined in March providing a fillip for first quarter economic growth, but the sharp drop in imports indicates that the consumer is unwilling or unable to supply the buying power to lift the economy out of stagnation.
The trade gap shrank 13.9 percent to $40.4 billion from $46.96 billion (revised from $47.1 billion) in February, reported the Commerce Department on Wednesday. It was the smallest deficit since February 2015 and less than the median estimate of $41.2 billion.
It was the large decrease in imports, more than 5 times as large as the decline in exports that brought the trade deficit to a 13 month low.
Imports fell 3.6 percent, $8.1 billion to $217.06 billion from $225.13 billion in February for the smallest total since February 2011. The bulk of the import slide came from a $5.1 billion plunge in consumer goods accompanied by a 1.6 billion decline in capital goods.
Exports decreased 0.9 percent, $1.5 billion to $176.62 in March from $178.16 billion the prior month. Goods exports fell $1.8 billion and services exports climbed $0.3 billion. The drop in foregn goods sales was largely due to a $1.6 billion drop in consumer items.
Despite the 3.8 percent fall of the dollar against the currencies of its main trading partners this year, that is a fraction of the 20 percent rise on a trade weighted basis between June 2014 and December 2015. That retained strength has curtailed the desirability of relatively expensive American goods.
The robust dollar has not however, produced a rush in the U.S. to buy cheaper foreign goods. Personal spending in March rose just 0.1 percent on the month and 3.5 percent on the year, down from 3.9 percent in February. The saving rate rose to 5.4 percent, the highest since February 2015 absorbing the majority of the 4.2 percent jump in annual personal income, up from 3.8 percent in February.
In the initial assessment of first quarter gross national product (GDP) the trade deficit subtracted 0.34 percent from the annualized rate , helping to produce the weak 0.5 percent pace. In the government tabulation of GDP exports add to and imports reduce the economy's total output.. The substantial improvement in the deficit for March has the potential to raise the GDP estimate when the first revison of the figure is released later this month.
One curiosity in the release was the deficit with China. The Commerce Department noted that the trade gap with the mainland had decreased $6.2 billion in March to $26.0 billion. Exports rose $0.1 billion to 8.5 billion and imports dropped $6.1 billion to $34.4 billion. Yet for the same month Chinese figures reported that its surplus with the U.S. rose. Both cannot be true.
Chief Market Strategist
World Wide Markets
National Association of Manufacturers