US trade deficit widened in April; net exports likely to boost overall economic growth in Q2

The US recorded a trade deficit of USD 37.4 billion in April, widened from March’s downwardly revised deficit of USD 35.5 billion. Consensus projection was for a deficit of USD 41 billion. US exports grew 1.5% m/m in nominal terms, whereas imports grew 2.1% m/m. Exports, in terms of volume, were up 2% in sequential terms; however, it declined 1.6% y/y. Growth in export was widespread. Services was the only category that saw a small decline. Meanwhile, volumes of imports increased 2.2% in sequential terms; however, they declined 1.6% y/y. The monthly increase in the volumes of import was widespread.

Even if the trade deficit broadened in April, exports data was quite upbeat, registering the biggest growth in more than two years. The curbing of the strength of the US dollar, earlier in 2016, might have provided support to US exporters, along with petroleum exports.

Annual revision indicates that the deficit in real trade contracted sharply in March. This provides a favorable base for the second quarter. If the real trade deficit in June and May continue to be the same as in April, net exports is likely to stimulate the real GDP growth in Q2, said Wells Fargo in a research report.

However, net trade is likely to face challenges  said TD Economics in a research report. As domestic demand of the US is expected to surpass several of its trading partners, trade deficit will keep widening over the rest of 2016.

Returning to trade data for April, exports of goods and services increased USD 2.6 billion, whereas imports grew by USD 4.5 billion. Exports of industrial supplies and material grew by USD 1.8 billion, partially due to higher commodity prices. However, capital goods exports increased over USD 100 million, whereas consumer goods exports rose almost USD 200 million. Automotive vehicles and parts' exports rose USD 839 million in April.

In the past year growth in exports has been adversely impacted due to sluggish growth in several of the major trading partners of the US and also due to USD’s appreciation. However, growth in export sector is unlikely to significantly increase anytime soon, according to Wells Fargo.

Meanwhile, a sharp growth in imports in April reversed the sharp decline registered in March. Recovery in oil prices assisted in increasing the petroleum imports’ value in April. However, non-oil imports also surged, along with imports of automotive vehicles and parts and consumer goods imports that grew around USD 500 million each in April. Capital goods imports recovered in April, growing USD 2.5 billion, following a noticeable decline in March. However, the real import growth trend in recent months has been quite weak, noted Wells Fargo.