Trade Gap Surprisingly Widens

MBA (4/11/2008 ) Velz, Orawin
The trade deficit in goods and services widened to $62.3 billion in February from $59.0 billion in January. This is the second consecutive increase in the trade deficit. Both exports and imports of goods and services increased but imports grew faster than exports.
Petroleum imports fell for the first time in a year while nonpetroleum imports increased sharply. The increase in nonpetroleum imports was largely due to jumps in the imports of capital goods and autos and parts.

The widening trade deficit was a surprise given the drop in the value of the dollar. Declining dollar value has helped improve the deficit because it makes U.S. exports less expensive to foreign consumers, boosting U.S. exports. At the same time, the falling dollar makes U.S. imports more expensive to American consumers, discouraging U.S. imports.

For a number of years, trade was a drag on economic growth. Starting in the second quarter of 2007, the trade sector turned into a boost to growth. On the year-over-year basis, real exports growth has exceeded real import growth over the past two years and this trend should continue given a weak dollar.

Adjusted for inflation, the real trade deficit widened to $51.5 billion from $49.7 billion. The average of January and February deficit was much higher than the average of the fourth quarter. Thus, the contribution from the trade sector to economic growth in the first quarter would likely be much smaller than that in the fourth quarter.

During the fourth quarter, trade contributed about one percentage point to economic growth. Real gross domestic product grew 0.6 percent (seasonally adjusted annualized rate) during the quarter and would have seen a 0.4 percent decline without the contribution from trade, other things remaining constant. Overall, the report supports the view that economic growth was anemic again in the first quarter.