WASHINGTON -- The U.S. trade deficit narrowed in March as exports rebounded to the second-highest level on record, led by strong gains in sales of aircraft, autos and farm goods.
While generally good news for the economy, the narrowing was less than the government had projected when putting together its estimate on gross domestic product, meaning the world's largest economy probably contracted in January through March instead of eking out a 0.1 percent gain at an annualized rate as reported by the Commerce Department last week.
The trade deficit declined to $40.4 billion, down 3.6 percent from a revised February imbalance of $41.9 billion, the Commerce Department reported Tuesday. The February deficit had been the biggest trade gap in five months.
"Exports rebounded after a few weaker months, and that's good to see," said Paul Edelstein, director of financial economics at IHS Global Insight Inc. in Lexington, Mass. "Imports were also up, and that's a good sign because it suggests that business and consumer spending are back on track. In general, this is a pretty good report."
U.S. exports rose 2.1 percent to $193.9 billion, with exports to Canada and South Korea hitting all-time highs. Imports also rose but by a slower 1.1 percent to $234.3 billion, reflecting increased shipments of cellphones, clothing and other consumer goods and increased demand for heavy machinery and other capital goods.
A smaller trade deficit can help economic growth because it means U.S. companies are earning more on their overseas sales. Analysts are looking for a small contribution to growth from a narrowing trade deficit this year. They forecast that an improving global economy will increase demand for U.S. exports. However, imports are also expected to rise as stronger U.S. activity increases consumer spending on foreign products.
The Commerce Department's advance GDP report last week showed declines in business investment, housing and government spending, along with the trade deficit, held back growth at the start of the year. Some economists blamed unusually harsh winter weather for the slowdown and projected a pickup this quarter.
Revised GDP figures from the department are due May 29.
Economists expect GDP growth will rebound in the second quarter to a much stronger rate of 3 percent or better as exports recover from their first-quarter decline and other parts of the economy gain momentum as summer weather spurs activity.
Paul Ashworth, chief U.S. economist at Capital Economics, said the important development was that the economy was showing many signs of a rebound in the current quarter.
"The monthly data clearly show a big resurgence in activity and employment over the past couple of months, confirming that the earlier weakness was weather-related," he said.
Many economists expect the trade deficit will keep narrowing this year as exports, helped by an energy production boom in the United States, grow faster than imports.
A domestic energy boom has increased exports and reduced America's dependence on foreign oil. U.S. petroleum exports rose to an all-time high of $137.2 billion last year, up 11 percent from 2012. Energy imports fell 10.9 percent to $369.4 billion as domestic production took the place of some imports.
For March, energy exports increased 3 percent to $11.4 billion while petroleum imports dropped 3.4 percent to $30 billion. For the first three months of this year, petroleum exports are up 7 percent while imports are down 3.4 percent.
The deficit with China dropped 2.2 percent in March to $20.4 billion but remained the largest imbalance with any country. The big trade gap with China has kept pressure on President Barack Obama's administration and Congress to take a tougher line on what critics see as unfair trade practices by China to gain advantages.
China is set to overtake the U.S. as the biggest economy in terms of purchasing power as early as this year, the International Comparison Program, which involves the World Bank and United Nations, said April 29.
The deficit with the European Union jumped 26.7 percent to $11.5 billion, though U.S. exports to Germany, the largest economy in Europe, climbed to the highest level since October 2008.
"In Europe, the economy is showing signs of recovery and faster growth," UPS Chief Executive Officer Scott Davis said in an April 24 earnings call. "Yet, if the situation in the Ukraine deteriorates, that pace may slow. Economic expansion in Asia has remained steady, with mid-single-digit growth. And in Latin America, expectations call for increased merchandise exports."
Information for this article was contributed by Martin Crutsinger of The Associated Press and Jeanna Smialek, Carlos Torres and Chris Middleton of Bloomberg News.
Business on 05/07/2014