US trade deficit narrows to lowest on record
The U.S. trade deficit shrank in April by the largest on record, in dollar terms. This reflects both a decline in the value of imports amid China’s Covid lockdowns and growth in US exports.
The gap in trade in goods and services narrowed $20.6 billion, or 19.1%, to $87.1 billion, Commerce Department data showed on Tuesday. The median estimate from a Bloomberg survey of economists called for a deficit of $89.5 billion. Figures are not adjusted for inflation.
Imports fell in April as factory activity in China fell to its lowest level since February 2020 amid strict lockdowns to curb the spread of Covid-19. While manufacturing in the country has since improved somewhat, the measures continue to strain already tenuous global supply chains, especially when coupled with Russia’s war in Ukraine.
The deficit with China narrowed in April by $8.5 billion, the highest in seven years. Imports fell by $10.1 billion, also the most since 2015.
Inflation, which has been high for decades, is expected to weigh on trade this year, with the World Trade Organization (WTO) slashing its forecast for growth in global merchandise volumes. So far, that has yet to materialize in the United States, judging by the near record amounts of cargo arriving at the ports of Los Angeles and Long Beach in April.
In the first quarter, the widening trade deficit largely explained the economy’s worst performance since the start of the pandemic recovery, with GDP shrinking at an annual rate of 1.5%. This is because the value of products that American businesses and consumers have purchased abroad have exceeded purchases of American goods and services by other economies.
Economists do not expect another contraction in the second quarter. On the contrary, a sustainably narrower deficit, helped by growth in real net exports, should make a positive contribution to GDP, said Rubeela Farooqi, chief U.S. economist at High Frequency Economics.
“Overall, supply chain dislocations and shortages have persisted, but exports and imports remain historically high,” Farooqi said in a note. “The gap between the two is well above the pre-pandemic trend, a trend that is expected to continue for now.”
The value of imports of goods and services fell 3.4% in April to $339.7 billion, the first decline since July of a broad-based decline. Exports rose 3.5% to a record $252.6 billion. U.S. merchandise imports fell from a record high in March, falling 4.4% (the most since April 2020), reflecting lower inbound shipments of consumer goods, industrial supplies, capital goods and equipment. cars.
Retailers like Target Corp. and Walmart Inc. attempt to offload excess inventory, accumulated in part as consumers shift more of their spending from goods to services. This may portend fewer imports in the future.
On an inflation-adjusted basis, April’s merchandise trade deficit narrowed 14.2% to $116.2 billion.
—With help from Kristy Scheuble.