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U.S. trade deficit hits record high as economy gains speed

Economic IndicatorsApr 07, 2021 11:35AM ET
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2/2 © Reuters. FILE PHOTO: Imported automobiles are parked in a lot at the port of Newark New Jersey 2/2

By Lucia Mutikani

WASHINGTON (Reuters) -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 (NYSE:MCO) 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 (NYSE:WFC) 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.

DRAG ON GROWTH

When adjusted for inflation, the goods trade deficit shot up to a record $99.1 billion in February from $96.1 billion in January. The so-called real trade deficit is running well above the average for the October-December period.

Economists at JPMorgan (NYSE:JPM) estimate trade could subtract a full percentage point from GDP growth in the first quarter, which would be the third straight quarterly drag.

But that is unlikely to make a dent on first-quarter GDP growth estimates, currently as high as a 10% annualized rate. The economy grew at a 4.3% pace in the fourth quarter.

Economists expect growth this year could top 7%, which would be the fastest since 1984. The economy contracted 3.5% in 2020, the worst performance in 74 years. The International Monetary Fund is forecasting the global economy to expand 6% this year, driven primarily by the U.S. economy, which the fund estimated would grow by 6.4%.

From the labor market to manufacturing and the hard-hit services industries, activity accelerated sharply in March.

But the housing market, one of the pandemic star performers is showing signs of fatigue.

A separate report from the Mortgage Bankers Association (MBA) on Wednesday showed applications for loans to buy a home fell 4.6% last week, dropping for a second straight week.

According to the MBA, the 30-year mortgage fixed rate has risen to 3.36%, a 10-month high. That, combined with higher house prices due to an acute shortage of properties, is making home-ownership more expensive for some first-time buyers.

"With inventory at record lows and affordability increasingly stretched thanks to rapid house price gains, we expect home purchase demand will trend down this year," said Matthew Pointon, senior property economist at Capital Economics in New York.

U.S. trade deficit hits record high as economy gains speed
 

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Comments (6)
Alan Rice
Alan Rice Apr 07, 2021 12:24PM ET
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Time for more roads and bridges ?? Think again.
Francesco Lucchesi
Francesco Lucchesi Apr 07, 2021 11:49AM ET
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it's easy to create jobs when you have unlimited printing potential
Sevantilal Patel
Sevantilal Patel Apr 07, 2021 11:16AM ET
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Most of the stimulus out of the US doors To China etc. Job creations. where Us Our China
Alan Rice
Alan Rice Apr 07, 2021 11:16AM ET
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English ??
Jon Bal
Jon Bal Apr 07, 2021 10:18AM ET
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so much for winning that trade war, eh?
Casador Del Oso
Casador Del Oso Apr 07, 2021 9:05AM ET
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Up next... Taxes to hit record highs
Felipe Daniel
Felipe Daniel Apr 07, 2021 8:58AM ET
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Biden will destroy the United States
Shawn Scientifica
Shawn Scientifica Apr 07, 2021 8:58AM ET
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How? With record hitting vaccine deployment? With highest job openings since before the pandemic? With this huge trade margin we are getting over everyone else? Only thing destroying America is you and people like you. Go find a racist country that wants you. Oops! No one, Literally no one on Earth wants Americans like you. Vanish
alex gallegos
alex gallegos Apr 07, 2021 8:58AM ET
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Now we have a president who conducts himself as a responsible executive and not an embarrassment in the eyes of the world.
Connecticut Yankee
A_Jaundiced_Eye Apr 07, 2021 8:58AM ET
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alex gallegos  Yes, because what is important is not what he does for America, but how he appears " in the eyes of the world," right? In the left-wing media and elites, America must be punished for its success. Jealousy, jealousy, jealousy.
john hu
john hu Apr 07, 2021 8:58AM ET
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👍👍👍✌✌
 
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