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U.S. trade deficit swells
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May 18, 2001: 11:20 a.m. ET
March gap makes record gain to $31.2B, far surpassing analysts' expectations
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NEW YORK (CNNfn) - The U.S. trade deficit posted the biggest monthly increase on record in March, the government said Friday, coming in above forecasts by Wall Street economists and sending mixed signals about the world's largest economy.
The nation's trade deficit swelled to $31.2 billion in March from a revised $26.8 billion in February, the Commerce Department said. Economists polled by Briefing.com had expected the deficit to widen to $29.2 billion. The gain was the biggest since the Commerce Department began tracking the deficit in 1992.
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The pickup in imports is in line with the sense we had that the slowdown in the U.S. economy is close to its bottom.
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David Roberts
Senior international economist
Banc of America Securities |
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Imports rose 2.9 percent to $120.64 billion from February, while exports edged down to $89.46 billion.
Economists said the trade deficit could improve this year as the slowing U.S. economy cut into what has been strong demand by American consumers for products made abroad. But the surge in March imports calls that prediction into question.
"The pickup in imports is in line with the sense we had that the slowdown in the U.S. economy is close to its bottom," said David Roberts, senior international economist with Banc of America Securities. "To some extent, last month's trade balance seemed surprisingly narrow, and this number is more in line with our basic view of the economy. We continue to see a U.S. economy that is growing slowly, but definitely growing."
But the rise in the deficit in March could cause the government's initial estimate of first-quarter economic growth to be revised lower. The Commerce Department estimated U.S. gross domestic product (GDP) of 2.0 percent in a preliminary report issued April 27.
"My reckoning is it will subtract a couple of tenths of a percent, so we will have first-quarter GDP at 1.5 percent instead of 2.0 percent," said Peter Kretzmer, senior economist with Banc of America Securities.
Still, economists pointed out that the data were two months old and that much had changed since the end of the first quarter, including two interest-rate cuts by the Federal Reserve to stimulate the economy.
"You probably want to subtract about two-tenths of a percent from first-quarter GDP growth. But that's looking like very old history, with the Fed having eased twice since the first quarter," said Ethan Harris, an economist with Lehman Brothers. "From the market's perspective, you feel like you're in a different world already. The first quarter looks very distant, indeed."
Little effect on stocks, dollar
Wall Street seemed to agree, yawning at the report, with stocks little changed in early trading.
In currency trading, the dollar rose slightly after the news. The euro bought 87.72 cents, compared with 88.14 cents late Thursday, while the dollar bought 123.35 yen versus 122.92.
A widening trade deficit will sometimes lead the U.S. government to try to weaken the dollar, since a weaker dollar tends to make U.S. goods cheaper for overseas buyers. Economists weren't too concerned about the effect of Friday's news on the dollar, however.
"As far as the dollar is concerned, I don't think this month's number will have much effect," Roberts said.
The total deficit for the first quarter of 2001 was $91.28 billion, compared with $85.26 billion in the year-earlier period.
Political problems grow
The politically sensitive deficit with China jumped by 13.1 percent to $5.7 billion in March, even though U.S. exports rose to $1.9 billion, the second highest level on record with that country.
Although the U.S. deficit with China continues to grow rapidly, the United States recorded its biggest monthly deficit in March with Japan, a $6.2 billion gap. The United States also posted a record deficit with Mexico of $2.8 billion in March, nearly double the February shortfall of $1.46 billion.
Continuing trade problems and imbalances represent a political challenge for President Bush, who is trying to overcome congressional resistance to granting him the negotiating authority he needs to strike a new free trade agreement with all the democratic nations in the Western Hemisphere, as well as to launch a new round of global trade talks.
While the Bush administration argues that American companies have no choice but to compete in the global economy, critics contend that lowering trade barriers subjects American workers to unfair competition from low-wage countries with lax environmental standards.
To support their case, the critics point to soaring trade deficits, including last year's all-time high of $368.9 billion, up 39 percent from 1999. 
- from staff and wire reports
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