U.S. Trade Deficit Narrowed Unexpectedly in March

The U.S. foreign trade deficit narrowed unexpectedly to $58.2B in March from $61.7B in February, revised slightly shallower. Consensus expectations had been for a March deficit of $61.2B. So far this year the deficit has averaged $59.6B, slightly deeper than during all of last year.

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

France remains a quintessential e-Zone economy. Its consumer sector has gone slack but capital goods output is still churning up a storm. Still capital goods is lagging sector. Its output can tend to stay strong as its industries turn out goods that are legacy of strong demand earlier in the cycle; it can lag in recovery as well, as demand for new equipments waits on the moment that new capital constraints are encountered. Capital goods is lagging sector in the economy. For this reason I do not take its ‘enduring strength’ as sign that it will bootstrap the rest of the economy into expansion.

The chart above shows the longer term relationship between consumer goods and capital goods output trends in France. History also tells us that the weakness in the consumer sector is something to be wary of – the sector tends to be a harbinger.

The banking sector problems in Europe and in France, the strong euro exchange rate, the slippage in various domestic surveys, give us even more reason to be wary of what has been ongoing strength in the capital goods sector. It seems to have become a sector with increasingly poor fundamentals despite its resilience.