NEW YORK: The U.S. trade deficit fell sharply in April as the effects of a West Coast port slowdown faded, easing one of the biggest drags on the economy during the opening months of the year.
The trade gap narrowed by 19.2% to a seasonally adjusted $40.88 billion in April, the Commerce Department said Wednesday. That was sharpest drop in more than six years.
Trade figures have swung wildly in recent months, in large part because the labor dispute at West Coast ports created backlog of goods early in the year and a surge in imports during March, after the matter was resolved.
Overall, trade was a major drag on the economy in the opening months of 2015. In the first quarter of the year, a surge in inflation-adjusted imports and falling exports subtracted 1.9 percentage points from gross domestic product, the broadest measure of output. Overall GDP contracted at a 0.7% annual pace, the government’s latest reading showed last week.
But in April, nominal imports dropped 3.3% to $230.78 billion while exports increased 1% to $189.91 billion.
The improvement, if sustained, could mean that trade may even boost GDP in the second quarter. RBS Securities is forecasting 2% GDP growth in the second quarter, with trade neutral. J.P. Morgan Chase expects trade to contribute 0.1 to 0.2 percentage point, with overall growth near 2%. Morgan Stanley is forecasting a 0.1 point drag from trade, putting second-quarter GDP at 2.7%.
“Trade may add to growth in the second quarter, but afterward, for the next two years, we expect it to be a modest drag on growth,” said Patrick Newport, U.S. economist at IHS Global Insight.
Tepid overseas demand and a strong dollar are both obstacles for exporters. From July through mid-March, the dollar appreciated more than 23% against a basket of major currencies, according to Federal Reserve data. That has made U.S. products more expensive overseas and foreign goods cheaper at home.
International sales dropped by about 20% for Power Curbers Inc. when the dollar surged, said Dyke Messinger, the Salisbury, N.C., company’s chief executive. Demand for equipment that lays down curbs, sidewalks, safety barriers and other concrete forms fell as shifting currencies effectively raised prices by as much as 30% in some markets.
Recently, inquiries from builders in the Philippines, India, Indonesia, Malaysia and other developing countries have started to pick up for machines that range from $200,000 to half a million dollars and can speed along infrastructure projects. “But it’s still not recovered by any means and we don’t know if it’s going to fully recover or not,” Mr. Messinger said.
Thankfully, domestic sales have been strong, a development Mr. Messinger attributes largely to new-home construction. But while overall business is up about 5% from last year and the company is “cautiously optimistic,” it’s not expanding or adding to a staff of just fewer than 100.
“We’re only adding where it’s essential,” Mr. Messinger said. “And we just haven’t had any needs.”
Through the first four months of the year, U.S. exports were down 2.3% while imports were down 1.8% from the same period a year earlier.
U.S. exports of services were the highest on record last month. Other categories were mixed, with sales of industrial supplies, capital goods and autos rising, but consumer goods and food falling.
One factor helping the overall trade gap: The petroleum deficit has narrowed sharply in recent years as domestic oil production surged. The trade deficit for petroleum products was $6.8 billion in April, the lowest since March 2002.
