A minor setback on the trade front, but hopefully it's merely temporary. The U.S. trade deficit increased in March for the first time in eight months, as exports declined faster than imports, the U.S. Commerce Department announced Tuesday.
The trade deficit increased 5.5 percent to $27.6 billion in March from $26.1 billion in February. Imports dipped 1 percent to a seasonally adjusted $151.2 billion -- the lowest level since September 2004. Exports, pushed lower by a large decline in capital goods and services, fell 2.4 percent to $123.6 billion, the lowest level since August 2006.
Economists surveyed by Bloomberg News had expected the trade deficit to total $27.5 billion in March. The trade deficit totaled $26.1 billion in February.
Recession weighs on international trade
In the past 12 months, real imports have plunged 18 percent and real exports have declined 14 percent.
Economists prefer that a nation run a trade surplus, as opposed to a trade deficit, as it usually implies that a nation's goods are competitive on the world stage, its citizens are not consuming too much, and that it's amassing capital for future investment and economic goals.
The pronounced recession that has created hardship and havoc in every sector of U.S. society has led to one long-term benefit for the U.S. economy: a decreasing trade deficit.
However, Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said he's not certain if March's trade data represent an aberration or if the favorable trade trend is beginning to end.
"The sharp narrowing trend seen in the last several months appears to be leveling off," Rupkey told Bloomberg News Tuesday. "As American consumers come back, that will widen the trade deficit and erase the positive effect" on the economy.
In March, imports of industrial supplies declined 2.1 percent, capital goods declined 1.7 percent, and services dropped 1 percent. Exports of capital goods fell 5.2 percent, consumer goods declined 4.2 percent, and services dipped 1.2 percent.
Also, the average price for imported oil increased to $41.36 per barrel from $39.22 -- its first increase in eight months.
Economic Analysis: Weighed against seven straight monthly declines, the March rise in the trade deficit may be a blip. But we'll have to keep an eye on exports: a large deterioration in that metric could signal an international economy that's failing to recover as forecast (in Q3/Q4).
The import metric is less of a concern: in the "frugal consumer" era, Americans are expected to continue to belt-tighten amid an economic slump and stagnant wages. It's highly unlikely imports will race ahead anytime soon.