The trade deficit of the United States experienced a significant expansion in April, marking the largest increase in eight years.
This growth was primarily driven by a rebound in imports of goods and a decline in exports of energy products.
If this trend continues, it could potentially hinder economic growth in the second quarter, making trade a drag on the overall economy.
According to the Commerce Department, the reported increase in the trade deficit for April was the highest since April 2015, pushing the trade gap to its highest level in six months.
Economists now anticipate that trade could subtract as much as 2.5 percentage points from the gross domestic product (GDP) this quarter, unless imports reverse their course.
However, this seems unlikely due to the persistent strength in domestic demand. Furthermore, factors such as a strong dollar and slowing global demand may further impede exports.
Christopher Rupkey, the chief economist at FWDBONDS in New York, expressed concern over the worsening terms of trade, stating that it could lead to a slowdown in second-quarter real GDP growth, potentially bringing it closer to the critical 1% stall speed where adverse consequences can occur, causing the economy to stumble and decline.
The trade deficit surged by 23.0% to reach $74.6 billion in April. Meanwhile, the data for March was revised, indicating a narrower trade gap of $60.6 billion instead of the previously reported $64.2 billion.
The government made revisions to the goods trade data from 2018, while the trade services figures were revised from 2017.
These revisions revealed that the trade deficit in the first quarter was not as substantial as initially believed.
Consequently, economists expect the government to increase its GDP growth estimate for the January-March quarter, potentially reaching a high annualized rate of 2.3% when the third estimate is published later this month.
These trade data revisions followed a solid report on construction spending released last week.
The second estimate of first-quarter GDP growth indicated that trade made no contribution to the economy’s 1.3% growth rate after three consecutive quarters of contributing positively.
When adjusted for inflation, the goods trade deficit experienced a sharp increase of 16.5%, reaching $95.8 billion in April.
This prompted Goldman Sachs to lower its second-quarter GDP growth tracking estimate by 0.5 percentage points, projecting a rate of 1.7%.
Stocks on Wall Street experienced mostly downward trends, and the dollar weakened against a basket of currencies, while U.S. Treasury prices fell.
In April, goods imports rose by 2.0%, reaching $263.2 billion, driven by an increase in motor vehicle, parts, and engine imports.
There were also notable rises in imports of industrial supplies and materials, although petroleum imports reached their lowest level since August 2021.
Imports of consumer goods saw a surge of $1.8 billion, primarily due to increased imports of cellphones and other household goods.
Food imports, on the other hand, were at their lowest point since December 2021. Imports of services decreased by $0.4 billion, amounting to $60.4 billion, primarily driven by declines in the transport and travel sectors.
Overall, imports experienced a 1.5% increase, totalling $323.6 billion.
In contrast, goods exports plunged by 5.3%, marking the largest decline in three years, and reaching $167.1 billion, the lowest level since February 2022.
This decline in exports can be attributed to the slowing global demand. Although the U.S. dollar had initially weakened earlier in the year following interest rate increases from the Federal Reserve, it has regained strength in recent weeks against the currencies of major U.S. trade partners.
This trend could potentially reduce the competitiveness of U.S.-made industries, but it could also be a breakthrough if done properly.