U.S. Trade Deficit Hits Record High as Economy Gains Speed

OILMONSTER.COM- The U.S. trade deficit surged to a record high in February as the nation’s economic activity rebounded more quickly than that of its global rivals and could remain elevated this year, with massive fiscal stimulus expected to spur the fastest growth in nearly four decades.

The economy is roaring as increased COVID-19 vaccinations and the White House’s $1.9 trillion pandemic rescue package boost domestic demand, a chunk of which is being satiated with imports. President Joe Biden last week proposed a $2 trillion infrastructure plan, expected to pull in even more imports and fire up economic growth.

“The deficit could remain wide this year and next because of the fiscal stimulus and potential infrastructure package that could pass in the second half of this year,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania. “As the economy continues to strengthen, this will keep the deficit wide.”

The trade deficit jumped 4.8% to a record $71.1 billion in February, the Commerce Department said on Wednesday. Economists polled by Reuters had forecast a $70.5 billion deficit. The goods trade gap was also the highest on record.

Exports dropped 2.6% to $187.3 billion. Exports of goods tumbled 3.5% to $131.1 billion, likely hurt by unseasonably cold weather across large parts of the country. The decline was led by shipments of capital goods, which decreased $2.5 billion.

Consumer goods exports fell as did those of motor vehicles, parts and engines. There were also fewer food exports. The pandemic remained a drag on services exports, especially travel.

Imports slipped 0.7% to $258.3 billion. Goods imports fell 0.9% to $219.1 billion. The drop likely reflected supply-chain constraints, rather than weak domestic demand. Indeed, imports of capital goods hit a record high, boosted by civilian aircraft, medical equipment and electric equipment among others.

Imports of industrial supplies and materials were the highest since October 2018, thanks to $1 billion worth of crude oil imports. That resulted in the United States recording its first petroleum deficit since December 2019.

But imports of motor vehicles, parts and engines decreased as did those of consumer goods. The reduction in trade flows in February was partly due to harsh weather, logistic and transportation problems at ports.

“Congestion at the ports of Los Angeles and Long Beach, which together account for a third of U.S. container imports, caused container ships to anchor offshore while waiting for available port space,” said Jay Bryson, chief economist at Wells Fargo Securities in Charlotte, North Carolina.

“Even when ships are docked and unloaded, port executives report higher than normal container dwell time, or the time it takes importers to pick up their cargo from port.”

Following the recent six-day blockage of the Suez Canal, economists expect trade flows remained depressed in March.

Stocks on Wall Street were trading higher. The dollar slipped against a basket of currencies. U.S. Treasury prices were mostly higher.

 Courtesy: www.reuters.com