Trade Gap
Tony Dejak/AP
By Lucia Mutikani

WASHINGTON -- The U.S. trade deficit narrowed in March as exports rebounded, but the improvement probably wasn't enough to prevent the government from revising down its estimate of first-quarter growth to show a contraction.

The Commerce Department said Tuesday the trade gap shrank 3.6 percent to $40.4 billion, broadly in line with economists' expectations. When adjusted for inflation, the deficit dipped to $49.4 billion from $49.8 billion in February.

March's shortfall, however, was a bit bigger than the $38.9 billion that the government had assumed in its advance first-quarter gross domestic product estimate published last week.

Economists said the data implied about a two-tenths of a percentage point reduction to the first quarter's 0.1 percent annual growth pace. The report came on the heels of March construction spending and factory inventories data that also proved weaker than the government had assumed in its advance GDP report last Wednesday.

"There is a very high chance that GDP will be revised to show a contraction in the first quarter, possibly in the neighborhood of minus 0.5 percent," said John Ryding, chief economist at RDQ Economics in New York.

That would be the first quarterly contraction in three years.

The government will publish revised GDP figures later this month. In its initial report, it estimated trade subtracted 0.83 percentage point from economic growth, with exports posting their largest quarterly decline in five years.

Exports Boost Growth Outlook

The increase in exports in March, however, was the latest sign to suggest the economy had momentum at the end of the quarter. Exports increased 2.1 percent to $193.9 billion in March, the highest level since November.

"The strong finish to the last quarter points to further improvement in the trade balance in the coming months if this positive momentum is sustained," said Millan Mulraine, deputy chief economist at TD Securities in New York.

Exports of capital goods, industrial supplies and materials, and automobiles increased in March. Exports of services hit a record high, while those of non-petroleum goods were also the highest on record. Exports to Canada, South Korea and Germany all touched all-time highs in March.

A slow pace of restocking by businesses as they worked through an inventory glut accumulated in the second half of 2013 had restrained imports in recent months, but that impact appeared to fade in March.

Imports rose 1.1 percent to $234.3 billion in March, the highest level in two years, in part reflecting a rise in the price of petroleum. Imports excluding petroleum increased 2.8 percent, a sign of rising domestic demand.

In March, imports of food and non-petroleum products hit record highs.

The politically sensitive trade gap with China narrowed a bit as exports of goods and services increased 9.6 percent, while imports advanced only 1.6 percent.

-Additional reporting by Richard Leong in New York.


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