Strong US dollar and weak global demand to continue to hurt US exporters in 2016

In February, US trade deficit broadened to USD 47.1 billion from January’s USD 45.9 billion, and more than consensus forecast of a deficit of USD 46.2 billion.  In nominal terms, US exports and imports grew 1% and 1.3%, respectively.

In terms of volume, exports grew 2.2% m/m and 0.5% y/y, supported by growth in petroleum exports. The month-on-month exports growth was broad-based, with an exception of the capital goods category that declined in the month. Meanwhile, import volumes grew 2.3% m/m and 6.8% y/y. Consumer goods mainly drove the monthly growth in import volumes that helped counter a fall in automotive vehicles.

February’s trade data has slight implications for the Q1 economic growth, according to TD Economics. But dollar’s appreciation in the past has hurt the competitiveness of the country’s goods and services exports. Also, the strength of US dollar is not expected to curtail through 2017, added TD Economics.

“Our outlook assumes that strong import growth, driven by the stronger dollar and firmer domestic demand, will shave an average of 0.5 percentage points off U.S. annual economic growth over 2016-2017”, noted TD Economics.

US exporters, in 2016, will have to endure dollar strength and weak external demand. However, with the tightening of labor market conditions and strong domestic demand, the US Fed is likely to restart its slow tightening of monetary policy in June 2016, said TD Economics.  But, the recent wave of negative consumption indicators implies that economic growth will be weaker in Q1 2016, exerting certain risks on the downside to the economic outlook, according to TD Economics.