U.S. trade deficit narrows in April on subdued imports

Trade deficit in the U.S. narrowed in the month of April. The deficit came in at USD 46.2 billion, as compared with Barclays’ projection of a deficit of USD 48.5 billion. Part of the miss compared to the projection came from an upwardly revised March’s trade balance by USD 1.8 billion. The rebound in the April trade deficit was driven by a narrowing of the goods deficit, in line with what the advance goods trade balance report indicated last week. The services trade surplus was widely unchanged from March.

Delving into details, the narrowing of the goods trade deficit was mainly driven by a decline in imports, which fell 0.3 percent sequentially. While imports of industrial supplies and capital goods rose, imports of consumer goods and automotive fell sharply. This was partially because of the decline in auto demand to pre-hurricane levels and there is unlikely to be any considerable rise in demand this quarter, stated Barclays in a research report.

Weakness in consumer goods imports might also be linked to higher energy prices being a drag on the overall consumer spending. However, with the fiscal stimulus kicking-in and consumers beginning to adjust to increased after-tax incomes, imports are likely to rebound in the coming months. Thus, the trade deficit is not expected to continue to narrow at the current rate. Meanwhile, growth in exports came in modest at 0.3 percent.

The weaker-than-anticipated imports growth in April suggests a lower trade deficit in the second quarter relative to what was factored in. Meanwhile, imports of core goods were below expectations, implying slightly lower core equipment investment, stated Barclays.

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