Trade Deficit to Widen Despite Improving Exports
Kiplinger's latest forecast on the direction of the trade deficit
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The U.S. trade deficit fell in April from its previous record high, to a seasonally adjusted $87.1 billion in April from a revised $107.7 billion in March – a 19.1% decline. Trade data have been volatile in recent months because of the distortions of the lingering pandemic and supply chain bottlenecks. The latest narrowing of the trade deficit is likely a consequence of China’s zero-COVID policy, and will probably widen again in coming months after China gradually reopens for business. More broadly, the deficit has widened over the past two years because the U.S. economy has generally grown at a faster pace than most of its major trading partners over that period.
Exports will continue to face headwinds due to weak economic conditions in Europe. Total exports grew 3.5% in April, led by soybeans and commercial aircraft. Service exports rose thanks to gains in transport and travel. On the imports side, the 3.4% drop was driven by widespread declines across goods categories, with consumer goods and industrial supplies leading the month’s drop. Service imports improved slightly on gains in both business services and travel, indicating a rebound in the leisure and hospitality industries.
Net exports will make a modest contribution to the second quarter’s GDP growth after acting as a drag on first-quarter GDP growth. But the trade deficit will remain wide this year as U.S. consumers continue to buy goods at a fast clip.
Sources: Department of Commerce, Trade Data
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