Trade Deficit Widens In April As Import Growth Outpaces Exports

The U.S. trade deficit widened in April from March as the growth in imports outpaced that of exports. Consumer goods imports saw a sharp increase in the month in a sign that the U.S. consumer may have bounced back in April following the release of tax rebates.

For April, the Census Bureau reported that the trade deficit widened to $40.3 billion from $38.8 billion in March. Economists surveyed by Reuters had expected the trade deficit to be $41.1 billion for the month. The figure was about 2 percent below the forecast.

Exports

Exports increased to $187.4 billion in April from $185.2 billion in March. Goods were $131.1 billion in April, up from $129.3 billion in March and services were $56.3 billion in April, up from $55.9 billion in March. Exports of consumer and capital goods were strong in the month as were freight and port services.

Weakness in exports was seen in industrial supplies and materials, which includes commodities as commodity prices dropped in April. Also, decreases in passenger fares, which includes air and other travel prices, declined in the month, weighing on exports.

Imports

Imports increased to $227.7 billion in April from $222.3 billion in March. Goods were $189.7 billion in April, up from $184.7 billion in March while services were $38.0 billion in April, up from $37.7 billion in March.

Consumer goods imports were very strong in the month as imports of consumer goods rose $3.0 billion. Also, autos and auto parts imports and capital goods imports were strong.

Geographic Breakdown

The goods deficit with the European Union increased from $9.9 billion in March to $12.4 billion in April. Exports decreased $1.8 billion to $21.1 billion, while imports increased $0.7 billion to $33.6 billion. Exports to the EU were weighed down by medical equipment and non-monetary gold while import growth was boosted by pharmaceutical supplies.

The goods deficit with China increased from $17.9 billion in March to $24.1 billion in April. Exports decreased $0.4 billion to $9.0 billion, while imports increased $5.8 billion to $33.1 billion. Export weakness was driven by agricultural commodity weakness including soybeans, tobacco, and cotton while import strength was driven by cell phone imports.

The goods deficit with Mexico decreased from $5.3 billion in March to $4.4 billion in April. Exports increased $1.9 billion to $19.9 billion, while imports increased $1.1 billion to $24.3 billion. Export growth was driven by aircraft and aircraft part sales and import gains were boosted by crude oil import growth.

Market Impact

The Dollar Index spiked on the news near session highs as the less than expected deficit is dollar positive. The dollar gained ground against the Australian dollar, the yen, the British pound, and the Canadian dollar. Notably, the AUD/USD fell 1.08 percent to 0.9665 as the dollar strengthened on the positive report but also following the Reserve Bank of Australia's interest rate decision, in which it kept rates flat at 2.75 percent but noted that there was "scope" to ease further if needed.

U.S. equity futures rose back into positive territory ahead of the release and extended gains following the data release. S&P 500 futures rose 3.5 points to 1,639.70 and Dow futures gained 14 points to 15,231.00. Tech-heavy NASDAQ futures also gained, rising 7.75 points to 2,993.25.

BY Matthew Kanterman