March trade deficit increases 43%; should have minimal impact on 1st quarter GDP

Our March trade deficit surged to the highest level in nearly 7 years as the ending of the west coast dock strike allowed ships that had been sitting offshore to unload.  The March report on our international trade in goods and services showed that our seasonally adjusted goods and services deficit rose by $15.5 billion, or 43%, to $51.4 billion in March, from a revised February deficit of $35.9 billion, which had itself fallen by $6.8 billion from January while the strike was underway. Our March exports rose $1.6 billion to $187.8 billion on a $1.5 billion increase to $127.1 billion in our exports of goods and an increase of $0.2 billion to $60.8 billion in our exports of services, while our imports rose $17.1 billion to $239.2 billion on a $16.4 billion increase to $197.6 billion in our imports of goods, while our imports of services rose $0.8 billion to $41.6 billion.  Adjusting for inflation based on chained 2009 prices, our 1st quarter our trade deficit increased by $20.9 billion to $173.1 billion, as adjusted exports fell from $371,029 million to $356,499 million and adjusted imports rose from $523,254 million to $529,625 million (see exhibit 10, pdf).  That is both a larger decrease in real exports and a larger increase in real imports than was estimated by the BEA in reporting on 1st quarter GDP last week.

The BEA press release provides a good overview of what transpired during the month, but to get the details on trade we have to view the full release and tables (55pp pdf) which is linked to on the sidebar and where over 200 line items of exports and imports are listed.  There, in exhibit 7, we see that the major reasons for the March increase in our exports were a $1,471 million increase in our exports of capital goods, led by a $490 million increase in our exports of civilian aircraft, while we also exported $12,282 million in autos and automotive products, a $792 million increase, $332 million more of foods and feeds (due to a $337 increase in our nut exports), and $317 million more industrial supplies (due to a $511 million increase in our exports of non monetary gold). Offsetting that was a $1,699 million dollar decrease to $16,141 million in our exports of consumer goods, led by a $577 million decrease in our exports of pharmaceuticals.

On the import side of the ledger (exhibit 8), we find our imports of consumer goods rose by $9,013 million to $54,164 million on a $1,677 increase in imports of cell phones and similar household electronics, a $1,293 increase in imports of synthetic textiles, and a $981 million increase in our imports of furniture and similar household goods.  However, our imports of cotton apparel and household goods, footwear, pharmaceutical preparations, toys, games, and sporting goods, televisions and video equipment.,other consumer nondurables, non textile apparel and household goods, household appliances, cookware, cutlery, tools, and camping apparel and gear all also rose by more that $250 million each, which almost certainly does not indicate an increase in consumption of consumer goods by that much, but rather just an offloading of waiting ships.  In addition, our imports of capital goods rose by $3,980 million to $52,047, our imports of autos and parts rose by $2,666 million to $28,851 million, and our imports of foods and feeds rose by $726 million to $11,027 million, probably all much higher as a result of the ending of the strike.  On the other hand, our imports of industrial supplies fell by $167 million to $42,617 million on decreases of $822 million in crude oil imports and $422 million of natural gas imports, while imports of industrial supplies likely impacted by the strike rose.

Since this $51.4 billion trade deficit was largely unexpected (economists surveyed by Bloomberg were expecting a trade deficit of $42.0 billion), there were widespread revisions of estimates of first quarter GDP, with economists at J.P. Morgan Chase and Deutsche Bank both cutting their first-quarter GDP growth estimates to show a 0.5% contraction, as did economists at Goldman Sachs, while Macroeconomic Advisers estimated a 0.4% contraction for the 1st quarter, and economists polled by the Wall Street Journal estimated decreases of 0.4 to 0.7% percentage points in first quarter GDP.  However, since imports subtract from GDP because they represent consumption or investment in the quarter that was not produced domestically, we would suggest that the hit to GDP from this report should be trivial,  as we expect most of the increase in imports should be included in wholesale inventories, or in retail inventories which will be released next week,  That being the case, there should be an offsetting increase in inventories which will add to GDP by nearly as much as the increase in imports subtracts.  However, reducing that record stockpile will likely have a major negative impact on 2nd quarter growth.



(cross posted from MarketWatch 666)

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Comments

imports in wholesale inventories?

Great you covered this, unexpected. I had another family situation, couldn't get to it.

But why would imports show up in wholesale inventories? They are "entering the country" in the report, many going directly to consumers.

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where did the imports go?

i'm sure some of the March imports went to consumers, but it seems impossible that the majority could have...there was a 20% increase in current dollar imports of consumer goods, vs a 1% increase in retail sales, so everything unloaded off the ships didnt get consumed in March...there are similarly large increases in imports of capital goods and most other categories...if they weren't consumed in March, where would they go, if not to a warehouse someplace?

you're right that they're not part of March wholesale inventories, the value of which was up by 0.1% after February was revised down by 0.1%...maybe they'll show up in retail inventories...

it's a conundrum, because that big jump in imports looks to subtract points from GDP, especially with the negative 16% deflator, and we have to know where they were added...i know that GDP convention for net exports is (X-M), but neither exist in isolation...exports add to gross domestic product because they represent that part of our production that was not consumed or added to investment in our country, and imports subtract from GDP because they represent either consumption or investment that was not produced here...if those imports weren't included in March consumption or investment, then they shouldn't subtract from GDP..

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rjs

import surge not hiding in retail either

April retail sales printed a gooseegg, March was revised down 0.1% to 0.8%, and March retail inventories were up just 0.1%...i will be very interested to see how the BEA handles that...

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rjs

correction / clarification

now that i’ve actually looked at the retail sales report, rather than relying on someone else's headlines…March’s sales were revised down to $436.8 billion from the originally reported $441.4 billion, but because February sales were revised down from $437.6 billion to $431.0 billion in a benchmark revision, the reported percentage increase from February to March rose from 0.9% to 1.1%…

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rjs

retail sales revisions

I just put the first year in but retail sales were revised to 1992. 2014 was down. This is why I wrote a "down" on the entire report since the revisions overall are much less than originally reported.

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