US Trade Deficit widens to $42.3 Billion in February

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US Trade Deficit widens to $42.3 Billion in February

The US trade deficit increased to a five-month high in February as demand for the country’s exports declined while imports advanced slightly.

Figures released by the Department of Commerce on Thursday show that the trade deficit hit $42.3 billion, having increased by 7.7% from January’s gap of $39.3.

As reported by ABC, the volume of US goods sold outside the country declined 1.1% to $190.4 billion as sales of commercial aircrafts, farm products and computers dropped. Imports increased 0.4% to $232.7 billion, indicating surging purchases of cars and clothing from outside the US, which compensated for a decrease in crude oil that hit a three-year low.

A widening trade deficit for the US serves as a hindrance to growth as it means US exporters are making less from selling outside the country than what competing firms in foreign countries are making in the US.

The trade deficit for January and February this year stood at 4.5% below the same period last year. The first two months of 2013 saw the gap drop to $474.9 billion, which was 11.2% lower than the deficit for 2012.

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Economists who had forecasted the gap to narrow to $38.5 billion said trade could reduce the US gross domestic product by up to half a percentage point. The factor added a percentage point to GDP of the fourth quarter.

“You are looking at a pretty soft first-quarter print,” Reuters quotes Michelle Girard, an RBS economist, as saying.

Growth estimates for the first three months of 2014 were already declining after taking a heavy toll from harsh weather and businesses ordering less from manufacturers.

Energy exports for February hit $11.1 billion, having sunk 10.2% while imports of petroleum dropped 2% to $31 billion. Purchase of crude oil from overseas dropped $19.5 billion, the lowest volumes since October 2010.

Critics attribute the US deficit to China’s unfair currency manipulation that gives it trade leverage.

To contact the writer of the article: Yashu Gola at yashu@forexminute.com