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US trade deficit drops 3.6 percent in March

Published on NewsOK Modified: May 6, 2014 at 8:09 am •  Published: May 6, 2014

WASHINGTON (AP) — The U.S. trade deficit narrowed in March as exports rebounded to the second highest level on record, led by strong gains in sales of aircraft, autos and farm goods.

The deficit declined to $40.4 billion, down 3.6 percent from a revised February imbalance of $41.9 billion, the Commerce Department reported Tuesday. The February deficit had been the biggest trade gap in five months.

U.S. exports rose 2.1 percent to $193.9 billion with exports to Canada and South Korea hitting all-time highs. Imports also rose but by a slower 1.1 percent to $234.3 billion, reflecting increased shipments of cellphones, clothing and other consumer goods and increased demand for heavy machinery and other capital goods.

A smaller trade deficit can boost growth because it means U.S. companies are earning more on their overseas sales.

In 2013, the trade deficit narrowed 11.2 percent to $474.9 billion, helping provide a small boost to overall economic growth.

Analysts are looking for a similar small contribution to growth from a narrowing trade deficit this year. They forecast that an improving global economy will boost demand for U.S. exports. However, imports are also expected to rise as stronger U.S. activity increases consumer spending on foreign products.

For the first three months of this year, trade was a big negative on overall growth, subtracting 0.8 percentage point in the first quarter as exports fell sharply compared to the final three months of last year.

That translated into weak overall growth in the gross domestic product of just 0.1 percent in the January-March quarter. Economists expect GDP growth will rebound in the second quarter to a much stronger rate of 3 percent or better as exports recover from their first quarter decline and other parts of the economy gain momentum as warmer weather spurs activity following the harsh winter.

While the trade deficit narrowed in March, economists said the improvement will not be enough to keep the government from revising its first quarter growth estimate down into negative territory.

But Paul Ashworth, chief U.S. economist at Capital Economics, said the important development was that the economy was showing many signs of a rebound in the current quarter.

"The monthly data clearly show a big resurgence in activity and employment over the past couple of months, confirming that the earlier weakness was weather-related," he said.

Many economists expect the trade deficit will keep narrowing this year as exports, helped by an energy production boom in the United States, grow faster than imports.

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