Trade Deficit Swells to Record High (Again)

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The U.S. trade deficit in goods and services surged to a fresh record in March, when it rose to a seasonally adjusted $109.8 billion, from a revised $89.8 billion in January. There has been a clear widening in the trade deficit since the start of the pandemic because of strong demand for foreign goods by U.S. households and businesses. That strength will likely moderate in coming months as demand for domestic services increases and inflation continues to rise.

The strong rise in exports in March was outweighed by an even stronger jump in imports. Total exports grew 5.6%. Industrial supplies and materials led growth in exports amid sizable price gains in oil-related commodities. Exports of auto-related goods rose modestly. Service exports rose, thanks to gains in transport, travel and financial services.

On the imports side, the 10.3% upsurge was driven by widespread gains across goods categories, with industrial supplies and materials and consumer goods leading the month’s increase. Service imports also improved on gains in both transport and travel, indicating a rebound in the leisure and hospitality industries.

Imports will likely fall back over the coming months. The COVID-19 lockdowns in China will probably have a negative effect on imports of Chinese goods, despite demand from businesses seeking to replenish inventories. Exports should rebound over the second quarter, but net trade is unlikely to contribute significantly to U.S. GDP growth.

Sources: Department of Commerce, Trade Data