U.S. Trade Deficit Narrowed Unexpectedly in March

· The weaker U.S. economy, along with the sagging value of the dollar continued to weigh on imports. A 2.9% month to month decline reflected a 2.7% drop in imports of nonpetroleum products. Measured in chained 2000 dollars these imports fell 3.6% pulling the year to year change down to -3.8%. Also in chained dollars, imports of capital goods reversed all of the February rise with a 2.2% (+3.0% y/y) decline. The 3.2% shortfall in chained imports of nonauto consumer goods was the third drop in four months and it left them down 4.7% y/y. Real imports of automotive vehicles & parts fell 9.4% (-10.3% y/y).

· Higher oil prices and the weaker U.S. economy together worked to lower the quantity of energy-related petroleum imports by 1.0% (-14.1% y/y) after a 12.8% February drop. The nominal value of petroleum product imports rose 5.7% (41.9% y/y) as crude oil prices rose 6.0% (69.5% y/y) to an average $89.85 per barrel.

· U.S. exports in March gave back their February rise with a 1.7% decline, but the relative strength of foreign economies lifted the year to year gain to 15.5%. But that firm trend has weakened recently. Goods exports fell 2.7% in March but in chained dollars they fell by 4.4% (+6.0% y/y). Chained dollar exports of nonauto consumer goods fell 5.7% (+3.3% y/y) after a 1.2% February decline. Exports of industrial supplies & materials also fell a sharp 4.5% (+10.2% y/y). Exports of capital goods were down for the fourth month in the last five, by 3.2% (+6.8% y/y). Exports of civilian aircraft recently have wobbled. In March they fell 31.9% (+6.1% y/y) for the fourth decline in the last five months. Exports of computers also fell a sharp 10.5% (+16.2 y/y). Finally, chained dollar exports of nonauto consumer goods fell 5.7% (+3.3% y/y) while real automotive exports fell 9.2% (-4.5% y/y).

· The U.S. trade deficit in goods with China improved sharply m/m to $16.1B, the smallest deficit in two years. Imports from China fell 7.0% (-1.3% y/y) for the fourth sharp decline in five months while March exports to China, conversely, rose 10.0% (16.0% y/y). The trade deficit with Europe deepened to $74.5B as exports rose 4.4% y/y and imports rose 2.6%.

· Exports of services slipped 0.1% (+15.9% y/y) as travel exports fell 0.1% (+23.0% y/y) and passenger fares rose 1.8% (23.3% y/y).

· Services imports fell 0.2% (+12.1% y/y). Travel imports nudged up 0.2% (6.4% y/y) and passenger fares fell 0.4% (+16.9% y/y).

· Macroeconomic interdependence and the international role of the dollar from the Federal Reserve Bank of New York can be found here 

By Tom Moeller