U.S. trade deficit likely on track to steady after a rough Q1

The U.S. goods & services trade deficit narrowed more than expected, to $40.9 bln in April from $50.6 bln in the prior month as exports rose 1.0% and imports fell a sharp 3.3%. Smoothing out the first four months of the year, the deficit averaged $42.8 bln, a shade wider than the $42.4 bln over the same period last year (both imports and exports are down modestly versus last year).

The real trade deficit narrowed sharply in April, as expected, with real exports rising 2.4% and real imports down 3.4% (again, some temporary factors). The bigger picture is that the strong U.S. dollar is still weighing on trade. Despite a solid month, export volume growth slowed to 1.9% y/y through the first four months of the year, while import volumes have risen 5.6% y/y.

"Adding it all up, net exports carved nearly 2 ppts points from real GDP growth in the tough first quarter, which was likely exaggerated by the port disruption-look for a roughly flat contribution in Q2. Further out on the horizon, net exports will likely continue to nip about half a percentage point from growth on average through the second half of this year and into early 2016." notes BMO Capital Markets