Weekly Economic Trends and Indicators
The Headline:
The U.S. trade deficit in goods and services increased from $98.1 billion to $130.7 billion in January before decreasing to $122.7 billion in February according to data from the Bureau of Economic Analysis. The surge in the trade deficit was mainly driven by an increase in imports of gold. Subtracting gold from the numbers would put the trade deficit roughly within the normal amount of fluctuation from month to month.
More recently, the newly increased tariffs are starting to show up in daily Treasury data. For the first 25 days of April, deposits of tariff revenue are more than double what they were last April. ($16.1 billion through April 25 compared to $7.7 billion for all of April 2024).
The Details:
Year-to-date, the trade deficit in most categories of goods is up compared to 2024. For the first two months of the year, farm commodity exports are down 8.6% while imports are up 11.6%. For manufactured goods, exports were essentially unchanged while imports are up nearly 25%.
The Context:
The rapidly changing economic environment for international trade has made it difficult to interpret the monthly fluctuations in the data. Even forecasting models, such as the Atlanta Fed’s GDPNow model have struggled to keep up with recent events. This model made headlines a few weeks ago when the January trade deficit data reported such a large increase in the trade deficit. Normally, such a large increase in imports would be associated with a decline in GDP, so the GDPNow model predicted a nearly 3% drop in GDP for the first quarter. However, because this was simply the importing of gold as a hedge against the impact of tariffs, it should not have as large of an impact on GDP. The Atlanta Fed has now been publishing the old estimate along with the “gold adjusted” estimate and further adjustment of the model is expected.
Then there is the matter of the tariff revenue itself. Because government revenue data is available in near-real-time, we already see the effect of the tariffs. While the increased revenue is substantial, it is nowhere near enough to replace a significant amount of income tax revenue. If April’s tariff revenue of $16.1 billion (as of the 25th) were to continue at that rate for a year, it would result in nearly $200 billion. That would represent only about 8% of the amount collected in individual income taxes in a year and only about 4% of total federal government revenue. Clearly this revenue is smaller than would be expected with the full menu of tariffs announced on April 2nd but put on hold. However, tariffs large enough to replace a significant fraction of income tax revenue would be likely to have serious negative impacts on the broader economy.
With first quarter GDP data to be released this week, we are about to get our first look at how much the policy uncertainty has had on real economic activity. Most analysts predict slower growth, possibly even a slight contraction in the first quarter.
Next week: U.S. GDP and U.S. employment report
