U.S. Trade Deficit Shrinks in March as Economy Gathers Momentum

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U.S. Trade Deficit Shrinks in March as Economy Gathers MomentumU.S. trade gap in March shrunk as export volumes surged, though the favorable report failed to convince the authorities from reviewing down the first-quarter growth estimates to indicate a contraction in the economy.

The trade deficit contracted 3.6 percent to $40.4 billion, reported the Commerce Department on Tuesday. When inflation is adjusted, the deficit fell to $49.4 billion from February’s $49.8 billion. However, the trade gap was slightly larger than the government’s earlier estimate of $38.9 billion in its flash first-quarter GDP report.

Imports surged 1.1 percent to $234.3 billion in the last month of the first-quarter, the most in two years. This was partly due to the increase in petroleum prices. When adjusted for petroleum, imports grew 2.8 percent, indicating increasing consumer appetite for imports. Non-petroleum and food imports in March touched record highs.

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Exports in March rose 2.1 percent to $193.9 billion, the most since November. The strong export growth in the third month of the first quarter is a strong indicator that the U.S. economy started accelerating at the end of that period.

Economists estimated that the figures showed that the first quarter’s annualized growth rate was slashed by two-tenths of a percentage point. The decline in economic activity will be the first quarterly reduction in three years.

“There is a very high chance that GDP will be revised to show a contraction in the first quarter, possibly in the neighborhood of minus 0.5 percent,” John Ryding, a New York-based chief economist at RDQ Economics told Reuters.

The government in expected to release its revised GDP report later in May. It had earlier indicated in its preliminary report that trade shaved off 0.83 percent off economic growth. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.

To contact the reporter of this story; Jonathan Millet at john@forexminute.com