A larger-than-expected trade deficit reported by the government Tuesday raised the chances that economic growth over the first three months of the year was actually a contraction.
The U.S. trade deficit with the rest of the world widened to $51.4 billion in March from a revised $35.9 billion in February, the Commerce Department said. It was the largest trade deficit since October 2008 as the U.S. financial crisis was unfolding.
Tuesday’s numbers were clouded by the resumption of trade flows after protracted labor strife over the winter at West Coast ports. Economists now think the anemic 0.2 percent annual economic growth rate for the United States from January through March was actually a negative number thanks to surging imports.
In a note to investors, economists at Bank of America Merrill Lynch warned that the surge in imports, which causes the trade deficit since they exceed exports, shaved 0.6 percentage points off of first quarter growth. If they’re right, that would turn the 0.2 percent growth rate to a 0.5 percent contraction in the first quarter when the Bureau of Economic Analysis provides its revised growth estimate on May 29.
“For 2015 as a whole, we continue to expect the trade sector to exert a drag on overall GDP growth,” said the bank economists, adding that “we see a more moderate drag materializing gradually over the course of the year.”
Another reason for the widening trade gap is a strong U.S. dollar, which has made U.S. exports more expensive abroad and imports into the United States from China and elsewhere much cheaper.
“Going forward, exports growth is likely to be low due to the stronger dollar and lackluster growth abroad,” said Patrick Newport, U.S. economist for forecaster IHS Global Insight, who also expected a first-quarter contraction and weaker growth this year because of softer exports numbers.
Tuesday’s surprisingly large trade gap is ill-timed for the Obama administration, which is trying to convince Democrats to support the president’s request for trade-promotion authority to finalize a trade deal with Asian nations with whom the United States already has a wide deficit.