April 5, 2013—The trade deficit narrowed slightly in February offering some optimism for the U.S. economy in the first quarter of 2013.
A $1.6 billion increase in exports of goods and services coupled with a modest $0.1 billion increase of imports resulted in an overall trade deficit of $42 billion, down from a revised $44.5 billion in January, the latest Commerce Department data showed.
A narrowing trade gap contributes to economic growth.
“The trade report was something good to console ourselves with after today’s job numbers,” said Beth Ann Bovino, an economist at Standard & Poor’s.
The Labor Department released data today showing the nation’s employers added a far lower number of jobs than expected, causing some concern that the recovery losing momentum.
The trade report showed improvement from last month particularly around imports and exports of industrial supplies.
In January the U.S. imported $4.0 billion worth of industrial supplies. In February, that number dropped $2.6 billion. Crude oil makes up the largest part of the sector.
“This is a volatile category,” said Brian Jones, senior U.S. economist with Societe Generale. “In this case, it was a drop in volume not prices so it could be the function of a mild winter.”
The decline in oil imports also indicates that the U.S. is producing more of its own energy—enough that the country is able to increase exports.
The January to February increase in exports of goods reflected increases in industrial supplies and materials of $1.8 billion.
“I’m most encouraged to see continuing strength in energy exports,” said Bovino. “Once again energy is leading the pack.”
The fact that exports are up indicates that the global economy seems to be doing all right. Americans selling goods overseas is good for U.S. workers as the greater demand for goods creates jobs.
“Exports are becoming more important for U.S. the economy,” said Krishen Rangasamy, senior economist with the National Bank of Canada in Montreal. “The U.S. dollar is very competitive due to quantitative easing.”
The Federal Reserve uses quantitative easing to stimulate growth when it can no longer reduce short-term interest rates. The process involves creating more money to buy bonds and other financial assets from banks. Eventually the extra money has to find a way out of the system before leading to inflation.
The big question now is when the Fed will pull back from manipulating the money supply. There are concerns it could happen as soon as this summer.
“We can’t rule it out,” said Bovino. “But the jobs report suggests otherwise.”
Weak job numbers in March could extend into spring as the impact of the sequester will start to be felt. Growth could slow down in which case the Fed may not slow down quantitative easing.
While difficult to predict, current signs point to U.S. exports of industrial supplies providing a slow and steady lift for the economy.