U.S. demand for imported goods slumped in March, overwhelming the impact of the first export decline in more than a year and causing the American trade deficit to shrink more than forecast.
"Consumers have cut back significantly in just about every area but necessities, and we're seeing clear evidence of this'' in imports, said Russell Price, senior economist at H&R Block Financial Advisors in Detroit. "Weakness in our economy also seems to be affecting growth in other areas of the globe, thus slowing demand for our exports as well.''
The gap narrowed to $58.2 billion, the lowest this year, from $61.7 billion in February, the Commerce Department said today in Washington. The shortfall with China was the smallest since 2006.
Imports dropped the most in six years as purchases of furniture, cars and telecommunications gear fell, reflecting the weakest growth since 2001 and a falling dollar that makes overseas goods more costly. Economists anticipate the U.S. expansion will stall this quarter as households struggle to cope with soaring food and fuel bills, a monthly survey by Bloomberg News published today showed.
The dollar, which fell earlier today, remained lower after the report. The U.S. currency was at $1.5444 per euro at 11:11 a.m. in New York, from $1.5393 late yesterday.
Economists forecast the trade gap would narrow to $61 billion from a previously reported $62.3 billion, according to the median of 71 economists surveyed by Bloomberg News. Forecasts ranged from $59 billion to $64.9 billion.
Recession Forecast
While a diminishing trade deficit adds to gross domestic product, the impact won't be enough to keep the economy out of a recession, Meny Grauman, an economist at CIBC World Markets in Toronto, said in a Bloomberg Radio interview.
"We still see a little bit more weakness on the consumer side,'' which makes up more than two-thirds of GDP, Grauman said. "And where that goes, the economy goes.''
Lehman Brothers Holdings Inc. economists said the smaller- than-forecast trade gap will probably lift the estimate for first-quarter growth by as much as 1 percentage point.
"The data suggest a boost to the first quarter, but do little to alter our overall view of U.S. growth,'' Drew Matus, a Lehman economist in New York, wrote in a note to clients.
Eliminating the influence of prices, which are the trade numbers used to calculate gross domestic product, the deficit shrank to $47.2 billion, the lowest since November 2003, from $50.9 billion.
Oil Imports
Imports decreased 2.9 percent, the most since December 2001, to $206.7 billion. Purchases of crude oil dropped, even as the average price for the month jumped to a record $89.85. The quantity of petroleum bought from overseas was the lowest since February 2007.
The trade gap may not be able to keep narrowing as oil prices continue to surge. Crude oil prices jumped to over $125 a barrel today, the highest ever.
Receding demand for goods from China helped narrow the trade gap with that nation to $16.1 billion, the smallest in two years. At the same time, exports to China were the second-highest ever.
Total exports fell 1.7 percent to $148.5 billion, driven by a decline in sales of commercial aircraft, autos and petroleum products. Even with the drop, the first since February 2007, exports were still the second-highest on record.
Demand for American goods from the European Union and from South and Central America set records in March.
Emerging Markets
Growth in emerging economies is boosting demand and prices for commodities such as oil. This in turn is leading to increased sales of American-made oil-drilling rigs and construction equipment as countries seek to tap natural resources and modernize highways and factories.
Brazil is preparing to tap the biggest crude-oil discovery in the Western Hemisphere in three decades, which lies just off its Atlantic coast. Petroleo Brasileiro SA, Brazil's state oil company, is in talks with Houston-based Transocean Inc. to extend offshore drilling contracts.
A lower dollar, by making American goods cheaper to overseas buyers, is also boosting exports. The dollar was down 9 percent against a trade-weighted basket of currencies from the U.S.'s biggest trading partners in the 12 months ended in March.
Cisco Systems Inc., the world's biggest maker of networking equipment, is among the companies benefiting from gains abroad. The San Jose, California-based company posted sales growth of 10 percent in the third quarter, even as U.S. sales grew only 5 percent.
"Asia-Pacific was very strong,'' Cisco's Chief Executive Officer John Chambers said in a Bloomberg Television interview May 7. "China and India are on fire.''
Still, record exports alone won't prevent the economy from shrinking. Harvard University economist Martin Feldstein, a member of the committee that determines when contractions begin and end, said May 6 in an interview with Bloomberg Television that the U.S. economy is sliding into a recession.'
"Consumers have cut back significantly in just about every area but necessities, and we're seeing clear evidence of this'' in imports, said Russell Price, senior economist at H&R Block Financial Advisors in Detroit. "Weakness in our economy also seems to be affecting growth in other areas of the globe, thus slowing demand for our exports as well.''
The gap narrowed to $58.2 billion, the lowest this year, from $61.7 billion in February, the Commerce Department said today in Washington. The shortfall with China was the smallest since 2006.
Imports dropped the most in six years as purchases of furniture, cars and telecommunications gear fell, reflecting the weakest growth since 2001 and a falling dollar that makes overseas goods more costly. Economists anticipate the U.S. expansion will stall this quarter as households struggle to cope with soaring food and fuel bills, a monthly survey by Bloomberg News published today showed.
The dollar, which fell earlier today, remained lower after the report. The U.S. currency was at $1.5444 per euro at 11:11 a.m. in New York, from $1.5393 late yesterday.
Economists forecast the trade gap would narrow to $61 billion from a previously reported $62.3 billion, according to the median of 71 economists surveyed by Bloomberg News. Forecasts ranged from $59 billion to $64.9 billion.
Recession Forecast
While a diminishing trade deficit adds to gross domestic product, the impact won't be enough to keep the economy out of a recession, Meny Grauman, an economist at CIBC World Markets in Toronto, said in a Bloomberg Radio interview.
"We still see a little bit more weakness on the consumer side,'' which makes up more than two-thirds of GDP, Grauman said. "And where that goes, the economy goes.''
Lehman Brothers Holdings Inc. economists said the smaller- than-forecast trade gap will probably lift the estimate for first-quarter growth by as much as 1 percentage point.
"The data suggest a boost to the first quarter, but do little to alter our overall view of U.S. growth,'' Drew Matus, a Lehman economist in New York, wrote in a note to clients.
Eliminating the influence of prices, which are the trade numbers used to calculate gross domestic product, the deficit shrank to $47.2 billion, the lowest since November 2003, from $50.9 billion.
Oil Imports
Imports decreased 2.9 percent, the most since December 2001, to $206.7 billion. Purchases of crude oil dropped, even as the average price for the month jumped to a record $89.85. The quantity of petroleum bought from overseas was the lowest since February 2007.
The trade gap may not be able to keep narrowing as oil prices continue to surge. Crude oil prices jumped to over $125 a barrel today, the highest ever.
Receding demand for goods from China helped narrow the trade gap with that nation to $16.1 billion, the smallest in two years. At the same time, exports to China were the second-highest ever.
Total exports fell 1.7 percent to $148.5 billion, driven by a decline in sales of commercial aircraft, autos and petroleum products. Even with the drop, the first since February 2007, exports were still the second-highest on record.
Demand for American goods from the European Union and from South and Central America set records in March.
Emerging Markets
Growth in emerging economies is boosting demand and prices for commodities such as oil. This in turn is leading to increased sales of American-made oil-drilling rigs and construction equipment as countries seek to tap natural resources and modernize highways and factories.
Brazil is preparing to tap the biggest crude-oil discovery in the Western Hemisphere in three decades, which lies just off its Atlantic coast. Petroleo Brasileiro SA, Brazil's state oil company, is in talks with Houston-based Transocean Inc. to extend offshore drilling contracts.
A lower dollar, by making American goods cheaper to overseas buyers, is also boosting exports. The dollar was down 9 percent against a trade-weighted basket of currencies from the U.S.'s biggest trading partners in the 12 months ended in March.
Cisco Systems Inc., the world's biggest maker of networking equipment, is among the companies benefiting from gains abroad. The San Jose, California-based company posted sales growth of 10 percent in the third quarter, even as U.S. sales grew only 5 percent.
"Asia-Pacific was very strong,'' Cisco's Chief Executive Officer John Chambers said in a Bloomberg Television interview May 7. "China and India are on fire.''
Still, record exports alone won't prevent the economy from shrinking. Harvard University economist Martin Feldstein, a member of the committee that determines when contractions begin and end, said May 6 in an interview with Bloomberg Television that the U.S. economy is sliding into a recession.'
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