Weekly Economic Trends and Indicators
The Headline:
The U.S. trade deficit in goods and services increased from a revised $123.2 billion in February to $140.5 billion in March according to data from the Bureau of Economic Analysis. Exports were up 0.2% in March, and imports increased 4.4%.
In related news, the pause in tariffs is showing up as decreased tariff revenue in May compared to April according to daily Treasury data. Tariff revenue is still up compared to before the April 2nd tariff announcement.
The Details:
In February, much of the increase in the trade deficit was due to imports of nonmonetary gold and finished metal shapes (which includes gold that has been processed into bars). The gold trade slowed down in March with a decrease of $12.1 billion in imports of nonmonetary gold and finished metal shapes, combined, compared to February. Increases in imports of pharmaceutical preparations, computer accessories, and automotive vehicles, parts, and engines more than made up for the decline in gold imports, rising by a combined $25.0 billion.
The increase in imports from these categories was most likely due to firms attempting to obtain these products before the anticipated tariffs would go into effect. This “pull forward” of imports helped push first quarter GDP growth into negative territory. When April numbers are released in a couple of weeks, we will have a better idea of whether the “pull forward” trade continued into the second quarter.
The Context:
Forecasting the future path of the U.S. economy has become much more challenging in light of the changing international trade landscape. The Atlanta Fed’s GDPNow model currently estimates 2.4% growth for the current quarter while the Blue Chip consensus is only slightly above 1%. A second quarter rebound is possible if the “pull forward” effect moderates. The bottom line is that the U.S. economy is fundamentally very strong right now. The most pressing concerns have to do with the effect of tariffs (and how this will affect supply chains and prices) and tax policy (and its effect on the long-term interest rates).
Another factor worth looking at in this environment is the value of the U.S. dollar on the world currency market. The nominal broad dollar index (which compares the U.S. dollar to a basket of world currencies) has decreased by over 4% since mid-January’s peak (which was the highest level since the current index began to be used in 2006). The dollar has lost 4% against the Canadian dollar and about 9% against the euro in that same time. In mid-January, the U.S. dollar was the strongest it had been against the Canadian dollar since 2003 (also a year marked by steel tariffs aimed at protecting U.S. manufacturers). The dollar decline, along with the tariffs, will likely improve the trade deficit over time as a weaker dollar makes U.S. products more affordable to the rest of the world. However, it could take several months for any improvement to show up in the data.
Next week: Inflation update
