US trade deficit widens sharply in April

THE US’ trade deficit widened sharply in April to the largest since October 2022, government data on Wednesday (Jun 7) showed.

This came as imports of goods rebounded while exports declined. The trend, if sustained, could lead to trade dragging on economic growth in the second quarter.

The Commerce Department said that the US’ trade deficit increased 23 per cent or US14 billion to US$74.6 billion. Data for March was revised to show the trade gap narrowing to US$60.6 billion instead of US$64.2 billion as previously reported.

“Net foreign trade often is sidelined in discussions of headline GDP growth, but it has been a huge swing factor since Covid,” said Pantheon Macroeconomics economists Ian Shepherdson and Kieran Clancy in a recent report.

They added that weakening in foreign trade will likely be “accompanied by a further drag from the inventory component, and a steep drop in investment in business equipment, making an outright drop in headline GDP more likely”.

Exports fell by US$9.2 billion to US$249 billion in the month. The slide came on the back of a decrease in value of goods shipments, such as crude oil and fuel oil, along with some consumer goods.

Meanwhile, imports edged up by US$4.8 billion to US$323.6 billion, with goods picking up on support from auto vehicles and parts, as well as some industrial supplies and materials.

Although the US’ imports have been boosted by resilient consumer spending, analysts expect this trend to weaken as well going forward, while tighter lending conditions weigh on investments. The anticipation is that trade could bring negative growth to gross domestic product (GDP) in the second quarter of the year.

Economist Matthew Martin of Oxford Economics said imports are likely to weaken in the months ahead, citing “a mix of declining consumer strength and a wave of destocking by businesses.”

Trade made no contribution to the economy’s 1.3 per cent annualised growth rate in the first quarter after adding to GDP for three straight quarters.