U.S. international trade had a disappointing first quarter. The gross domestic product grew slightly by 0.5 percent on an annualized pace, according to a report released last week by the Commerce Department. This is the slowest pace in the past two years. The U.S. economy is still suffering the effects of a strong dollar and a weak global economy, which makes American goods more expensive to the world at large. The U.S. International Trade report for March will likely reflect the nation’s modest growth. Here are five things to watch in tomorrow’s report released by the Department of Commerce.
- A decline in exports
Economists surveyed by Bloomberg predict a $41.3 billion trade deficit for the month of March, a narrowing of $5.8 billion. This is welcoming news since the gap widened to a six-month high of $47.1 billion in February.
“It will be encouraging to see a sharp narrowing,” said Brittany Baumann, an economist at Credit Agricole. “The details are going to be less positive though because it could mean another decline in exports.”
American imports remain unattractive compared to other imports in foreign markets because of an appreciated dollar, but an increase in demand of American imports is possible.
If the dollar continues to depreciate, Jim O’Sullivan, chief U.S. economist at High Frequency Economics, expects exports to stop declining, but not dramatically. “I wouldn’t count on any surge of exports,” he said.
- Ongoing deficits in global trade balances
A struggling global economy remains a drag on U.S. exports. China had the largest deficit at $32.1 billion in February. Canada, another important trade partner, had a deficit of $1 billion, the European Union held a deficit of $10.6 billion, and Mexico had a deficit of $5.1 billion.
These deficits are not expected to change drastically for the month of March. Canada’s economy continues to recover from a weak economy tied to oil. China raised its currency last week to 6.4589, the biggest exchange rate increase in 11 years, in a move to stay competitive in world markets. The European Union faces multiple uncertainties in dealing with Greece, a possible Brexit and a migrant crisis.
- A contraction of imports
In January, U.S. imports of goods and services dipped from $224.9 billion to $222.1 billion, nearing an all-time low in March 2013 of $221.3 billion. Based on the advance trade report, imports of goods plunged from $181 billion (seasonally adjusted) in February to $173 billion in March. Consumer imports is expected to have the biggest drop from $51 billion to $46.5 billion (preliminary). Cheaper import prices due to the strong dollar hasn’t seemed to increase spending on imports.
“Weakness in imports is a bad sign for the economy,” O’Sullivan said. “On a sustained basis, it’s a sign of weak domestic demand.”
- A surplus of services
Exports of U.S. services have remained steady from January to February and should be a bright spot on the trade report. Economists predict a surplus for the month of March. It has changed minimally for 2015 and has not dipped below $59 billion.
- An inaccurate gauge of the economy
The trade report is not viewed by economists as an accurate gauge of the economy’s status because highs and lows are to be expected from month to month. The deficit hit a six-month high in February at $47.1 billion, so a smaller deficit in March is encouraging but nothing to celebrate. Similarly, a decline in imports, a sign that consumer demand decreased, is no cause for alarm.
“The monthly numbers are so volatile that you really can’t read into one really weak month,” O’Sullivan said.
While exports remains a drag on trade, economists are hopeful that the nation’s economy is still on an upswing.
“It’s kind of steady as she goes,” said Russell Price, a senior economist at Ameriprise Financial. “The economy is growing but at a sluggish rate.”
